New pricing system may halt petrol import

The oil industry has cautioned the government that the revised petroleum pricing mechanism may force oil marketing companies (OMCs) to halt the import of petrol.

The Oil Companies Advisory Council (OCAC) – an industry lobby – has proposed that the relevant provision be amended to provide that where Pakistan State Oil (PSO) has no motor spirit (MS) import cargo during the preceding seven working days, the premium, incidentals, customs duty and the applicable exchange rate adjustment of PSO's most recent MS import cargo shall be applied instead of the calendar-year-to-date (CYTD) average.

In a letter addressed to Federal Secretary Ministry of Energy (Petroleum Division) Hameed Yaqoob Sheikh, the OCAC drew attention to the revised petroleum pricing mechanism approved by the federal government on August 19, 2026. It highlighted a specific issue in the mechanism for MS import pricing, which could result in importing OMCs being unable to recover their actual procurement costs.

Under the approved mechanism, where PSO has no MS import during the preceding rolling seven working days, the CYTD average of premium, incidentals and customs duty is applied.

OCAC said it believed that the CYTD average was not an appropriate proxy for the prevailing import cost. In the absence of a PSO cargo within the seven-working-day window, the pricing should instead be based on the actual premium, incidentals, customs duty and applicable exchange rate for PSO's most recent MS import cargo.

"This would ensure that the administered price reflects the latest actual procurement cost, rather than a historical average which may be materially different from the replacement cost faced by importing OMCs," it said. "The issue is particularly relevant in the current market, where MS import premiums have increased significantly."

In October 2026, PSO has an approximately 10-day gap between its cargoes scheduled for October 13-15 and October 26-28. During this period, the current mechanism could revert to the CYTD average premium of approximately $13/barrel.

However, PSO's own subsequent cargoes are being procured at premiums of $28.47/barrel for late October and $28.76/barrel for early November. Industry cargoes are similarly being procured at premiums substantially above the CYTD average. Consequently, applying the CYTD average during the intervening period could result in an estimated under-recovery of approximately Rs16-17/litre for the importing OMCs.

Proposed amendment

OCAC, therefore, proposed that the relevant provision be amended to provide that where PSO had no MS import cargo during the preceding rolling seven working days, the premium, incidentals, customs duty and applicable exchange rate adjustment for PSO's most recent MS import cargo shall be applied instead of the CYTD average.

"This approach is straightforward, transparent and directly linked to an actual market transaction, while avoiding significant under-recovery where current international procurement costs have moved materially away from the historical CYTD average," it said.

Pakistan remains structurally dependent on imported petroleum products, with approximately 70% of MS requirements met through imports. "Ensuring that the pricing mechanism adequately reflects actual import costs is, therefore, important not only for the financial sustainability of importing OMCs but also for maintaining uninterrupted petroleum supplies," the council said.

The matter was discussed with the Ministry of Energy (Petroleum Division) and Ogra on October 6, where the OCAC was advised to submit its recommendation to the relevant forum for consideration.

The issue, it said, also needed to be viewed against the industry's existing financial pressures, including Rs66.7 billion in outstanding price differential claim (PDC) recoveries, stagnant OMC margins, rising operating costs and increasing compliance requirements. OCAC requested for a meeting and the secretary's intervention to consider the proposed amendment on an urgent basis.