Life after oil prices deregulation
The oil deregulation policy has been approved by the Economic Coordination Committee (ECC) of the cabinet.
KARACHI:
Finally, after months of talks the oil deregulation policy has been approved by the Economic Coordination Committee (ECC) of the cabinet.
Details have not yet been released, but reports suggest that the deregulation would be implemented on petrol in the first phase and diesel in the second.
The government has given its signal to the oil marketing companies (OMCs) that they must improve their retail network and increase storages to become more efficient, said Topline Securities analyst Farhan Mahmood. OMCs will now focus on building their storage facilities and start looking at avenues to acquire refineries, added Mahmood.
Fixed margins not
to hit profits hard
The ECC also approved the fixing of margins for oil marketing companies. The decision should not have major bearing on the overall profitability of OMCs, said JS Global Capital analyst Syed Atif Zafar.
Margins for motor spirit, high octane blending component, kerosene oil and light diesel oil have been fixed at Rs1.5, Rs1.72, Rs1.58 and Rs1.61 per litre, respectively. Previously, OMCs charged a four per cent margin on the ex-refinery price and inland freight equalisation margin (IFEM).
The four products under review only comprise 11 per cent of the total oil consumption.
Due to the higher share of high speed diesel and furnace oil – whose margins have already been fixed for some time - in the product mix, Pakistan State Oil (PSO) and Attock Petroleum Limited (APL) are likely to encounter only a nominal impact on their future earnings, added Zafar in the company research report.
Earnings of PSO and APL are expected to be dampened by three per cent and two per cent annually, respectively. However, Shell’s profit is expected to surge nine per cent owing to a greater share of 20 per cent of the four products rather than the market average of 11 per cent.
Following the removal of Inland Freight Equalisation Margin (IFEM) - the transportation cost between refineries and depots - there will be a variation in retail petrol prices throughout the country. Now the actual freight will be borne by OMC itself, informed Mahmood.
Thus, OMCs which want to retain or increase their market share, will need a back-up refinery and adequate storage to minimise freight cost element.
In the short run, APL would be a major beneficiary as it has refineries in both northern and southern regions of the country. APL’s market share in petrol might improve while PSO’s share will decline as due to price advantage both ARL and National Refinery (Attock group companies) will increase sales to APL leaving PSO and other OMCs to rely on expensive imports unless the government allocates a sales quota.
Published in The Express Tribune, October 19th, 2010.
Finally, after months of talks the oil deregulation policy has been approved by the Economic Coordination Committee (ECC) of the cabinet.
Details have not yet been released, but reports suggest that the deregulation would be implemented on petrol in the first phase and diesel in the second.
The government has given its signal to the oil marketing companies (OMCs) that they must improve their retail network and increase storages to become more efficient, said Topline Securities analyst Farhan Mahmood. OMCs will now focus on building their storage facilities and start looking at avenues to acquire refineries, added Mahmood.
Fixed margins not
to hit profits hard
The ECC also approved the fixing of margins for oil marketing companies. The decision should not have major bearing on the overall profitability of OMCs, said JS Global Capital analyst Syed Atif Zafar.
Margins for motor spirit, high octane blending component, kerosene oil and light diesel oil have been fixed at Rs1.5, Rs1.72, Rs1.58 and Rs1.61 per litre, respectively. Previously, OMCs charged a four per cent margin on the ex-refinery price and inland freight equalisation margin (IFEM).
The four products under review only comprise 11 per cent of the total oil consumption.
Due to the higher share of high speed diesel and furnace oil – whose margins have already been fixed for some time - in the product mix, Pakistan State Oil (PSO) and Attock Petroleum Limited (APL) are likely to encounter only a nominal impact on their future earnings, added Zafar in the company research report.
Earnings of PSO and APL are expected to be dampened by three per cent and two per cent annually, respectively. However, Shell’s profit is expected to surge nine per cent owing to a greater share of 20 per cent of the four products rather than the market average of 11 per cent.
Following the removal of Inland Freight Equalisation Margin (IFEM) - the transportation cost between refineries and depots - there will be a variation in retail petrol prices throughout the country. Now the actual freight will be borne by OMC itself, informed Mahmood.
Thus, OMCs which want to retain or increase their market share, will need a back-up refinery and adequate storage to minimise freight cost element.
In the short run, APL would be a major beneficiary as it has refineries in both northern and southern regions of the country. APL’s market share in petrol might improve while PSO’s share will decline as due to price advantage both ARL and National Refinery (Attock group companies) will increase sales to APL leaving PSO and other OMCs to rely on expensive imports unless the government allocates a sales quota.
Published in The Express Tribune, October 19th, 2010.