OMCs, dealers: ECC to again discuss increase in margins

OGRA will also submit its views on deregulating petrol margins.

Zafar Bhutta August 07, 2014


The Economic Coordination Committee (ECC) of the cabinet in its next meeting is likely to take up again the proposal that calls for increasing the margins of oil marketing companies (OMCs) and petroleum product dealers, officials say.

Earlier, the committee put off a decision on the increase in margins until the issue of deregulation of petrol margins was examined, which would lead to varying prices across the country.

It also refrained from taking the decision in the wake of Ministry of Finance’s suggestion that the margins should be kept unchanged by the time prices of petroleum products started falling. “This will help the government stave off public criticism,” the ministry said.

According to officials, the petroleum ministry had proposed deregulation of petrol margins for six months, however, the OMCs refused to take responsibility of the conduct of dealers if they manipulated the prices afterwards.

In the upcoming ECC huddle, the Oil and Gas Regulatory Authority (Ogra) – the industry regulator – will submit its views on deregulating petrol margins.

Officials pointed out that the regulator had opposed the deregulation of OMC and dealer margins on petrol, arguing there was no mechanism to monitor them, which would result in their manipulation by the oil industry.

It, however, proposed that the OMC and dealer margins on petrol should be increased as was suggested for high-speed diesel (HSD).

The petroleum ministry proposed a rise of Rs0.16 per litre in HSD margins, but the OMCs did not agree. “Now, a higher margin of Rs0.19 has been proposed for the approval of the ECC,” an official said.

For dealers, an increase of Rs0.40 per litre in margins has been recommended.

The revision in margins is being calculated keeping in view the changes in the Consumer Price Index (CPI) since the date of last revision in November 2012 and in order to give an appropriate return on investment.

The margins will be set on the basis of a rise of 16.4% in the CPI from November 2012 to February 2014, as announced by the Pakistan Bureau of Statistics, the state-run statistical organisation.

A study, conducted by the Pakistan Institute of Development Economics (PIDE), has recommended an annual review of margins of the OMCs and dealers based on markup on assets and the CPI published by the State Bank of Pakistan.

In its report, PIDE took into account various cost factors of the OMCs and dealers separately. Based on its findings and analysis of expenditures and existing margins as well as keeping in view the importance of oil industry in the economy, PIDE recommended an upward revision in margins.

For petrol, it proposed an increase of Rs0.63 per litre for the OMCs and Rs0.64 per litre for dealers and for high-speed diesel, it suggested a rise of Rs0.82 per litre for the OMCs and Rs0.81 per litre for dealers.

However, for consumers, the increase was estimated at Rs1.49 per litre in petrol and Rs1.91 per litre in diesel including the impact of general sales tax.

Published in The Express Tribune, August 8th, 2014.

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