Oil industry facing Rs35.88bn cash flow deficit: OCAC

ISLAMABAD: Oil industry was facing a cash flow deficit of Rs35.88 billion on lower exchange loss adjustment and custom duty, as well as the long pending increase in the margins of oil marketing companies (OMCs).

The liquidity crunch could also increase the crisis in terms of availability of petroleum, oil and lubricants in the country, the Oil Companies Advisory Council (OCAC) said in a letter to the State Minister for Petroleum Division Musadik Malik

The oil industry’s body drew attention to the fact that the prices of motor fuels have been restricted yet again for the second fortnight of February 2023 by the authorities, who did not follow the formula approved by the government of Pakistan.

The letter also mentioned that the government has reduced price components unjustifiably, pinpointing that exchange loss adjustment has been reduced by Rs22.72/litre on MS and Rs74.91 on HSD.

Likewise, the government also reduced customs duty by Rs4.24/litre on MS and Rs3.64 on HSD on verbal instructions of the Oil and Gas Regulatory Authority (OGRA). However, the government has not yet increased the OMCs margin by Re1 to Rs6 in HSD price, knowing the fact that the Economic Coordination Committee (ECC) had approved the increase in margins on October 31, 2022.

This has financially impacted the oil industry that was currently facing a deficit of Rs35.88 billion.

The OCAC letter said that the impact of Rs35.88 billion does not include the impact of exchange losses related to the imports whose payments are still outstanding. The oil industry stakeholders also highlighted the fact that the control of oil prices has continued since the past year which is not sustainable and will severely impact the already crippled oil industry.

The industry is facing a severe financial crunch due to high global prices, depreciation of rupee, increased hurdles in the letters of credit confirmation charges, challenges in establishment and retirement of LC, high markup rates, and high premiums on imports.

If this continued, OCAC warned that the oil industry would not be able to survive.

To ensure the survival of the industry and avoid any supply chain challenges, OCAC urged the government for immediate revision of prices based upon the approved pricing formula and an urgent meeting with industry members to develop a mechanism for recovery of exchange losses.

The letter also said that the agriculture season is about to start in the second week of March 2023, and the oil industry will not be able to meet the increased demand if the current restrictive pricing continued further.