OMCs may face Rs7.55bn in losses due to unchanged oil prices

ISLAMABAD: Government efforts to stabilise oil prices for the second fortnight could inflict Rs7.55 billion in damages on the struggling oil industry and also lead to supply chain disruption, an oil companies SOS letter said on Wednesday.

The Oil Companies Advisory Council (OCAC) in its letter to the Minister of State for Petroleum Division said the government kept motor fuel prices unchanged from November 16 to December 1, 2022, at the cost of the oil industry. It pointed out that the decision was taken despite knowing the fact that prices were increasing based on the government-approved pricing formula.

However, the coalition government, “instead of passing on the increase to end consumers or absorbing the impact of the increase by reducing the petrol levy, has reduced the Inland Freight Equalization Margin (IEFM), Exchange Loss Adjustment, and Margins of oil marketing companies (OMCs)”. This would cost the oil industry a monetary loss of Rs7.55 billion in the next 15 days.

The oil industry has already been facing a severe financial crunch due to high global prices, rupee depreciation, increased letters of credit confirmation charges, and high premiums on imports. The industry would not be able to survive if these adjustments were not removed immediately, the OCAC letter said.

The OCAC argued that the forced stabilisation of oil prices at the cost of industry was not sustainable as it would severely impact the oil industry. OCAC also urged the government to hold an urgent meeting with industry representatives to ensure the survival of the oil industry and avoid any supply chain challenges.

The government has unilaterally reduced the IFEM by Rs3.2 and Rs2.72 per litre on Mogas and high speed diesel (HSD) respectively, it pointed out. It has also decreased the exchange loss adjustment by Rs3.01 and Rs2.11 per litre on petrol and diesel respectively.

It also highlighted that the long pending revision of OMCs’ margin on motor fuel was approved by the Economic Coordination Committee on October 31, 2022; however, the revised margin of Rs6 per litre for both products has not been incorporated in prices till date.

Monetary loss of Rs7.55 billion in the next 15 days was worked out based on the sales volume for the second fortnight of November as confirmed in the Product Review meeting chaired by the Oil and Gas Regulatory Authority (OGRA).

As per details, because of the reduction of IFEM on MS and HSD, OMCs would lose Rs2.854 billion; under the head of the decrease in exchange loss on both the products, the OMCs would lose Rs2.472 billion, whereas under the reduced margins on petrol and diesel head, OMCs would lose Rs2.226 billion.

“The impact of Rs7.55 billion does not include the impact of exchange loss adjustments that have been withheld and staggered by OGRA since August 2022," concluded the letter.