Oil industry seeks Rs12 per litre margin on diesel, petrol to ensure survival

• Request has been made in view of the high cost of business.
• OCAC seeks urgent implementation of upward revision in margins.
• OMCs margin on diesel is Rs6.50 per litre.
  

KARACHI: In view of the high cost of business, which has created financial hardships, Pakistan’s oil marketing companies (OMCs) have sought Rs12 per litre margin on high-speed diesel (HSD) and petrol, The News reported Thursday.

During the latest review of petroleum prices on April 30, the OMCs margin on HSD was Rs6.50 per litre whereas it was Rs6 per litre on petrol. Apart from the OMCs’ margin, dealers are charging Rs7 per litre margin on these two petroleum products.

The demand of the oil industry for raising the margin of OMCs on HSD and petrol was made in a letter to the secretary Ministry of Energy — Petroleum Division. 

“In order to maintain the feasibility and ensure the survival of OMCs, we recommend that OMCs’ margin for HSD and Mogas (petrol) should be set at Rs12/litre which amounts to less than 6% of the current Ex Refinery price,” Oil Companies Advisory Council (OCAC) — the umbrella body of OMCs and refineries — stated in the letter.

OCAC pointed out that the oil industry plays a critical role in the country by ensuring uninterrupted fuel supplies across the country as well as generating significant revenues in the form of duties, taxes and levies.

However, the oil industry has faced severe challenges since last year because of the increased cost of doing business. 

The reasons vary from increased fuel prices in the international market and exchange rate to increased interest rates (leading to inventory holding cost of around Rs3 per litre), credit letter confirmation charges leading to higher demurrages, and high turnover tax (0.5%) etc.

The oil body pointed out that the margin for diesel and petrol has been revised to Rs6 per litre during the current year based on the decision taken by the Economic Coordination Committee (ECC) dated October 31, 2022; however, the same is insufficient and needs to be reviewed urgently.

It stated that the OMC business requires continued investment in infrastructure along with digitisation of the fuel supply chain. 

The OCAC letter pointed out that this was currently not possible as the industry is constrained due to insufficient margins, delayed recovery of exchange losses, continuous fluctuation of rupee, rising financing costs, challenges in confirmation of letter of credits, high turnover tax, and several other factors that have been communicated to relevant quarters time and again.

The body sought urgent review and implementation of upward revision in the margins in order to ensure the continued feasibility of the oil marketing sector. 

The pricing mechanism of diesel and petrol includes ex-refinery prices along with OMCs and dealer margins and inland freight equalisation margins. The government taxation in the form of petroleum levy is also part of this price.