Government seeks review of OMCs’ exchange rate formula

KARACHI: The federal government has asked the Oil and Gas Regulatory Authority (OGRA) to review the existing formula of exchange rate adjustment on import of petroleum products, The News learnt on Friday.

“The existing exchange rate adjustment formula is flawed as it doesn’t accurately adjust the rate of exchange as it is based on Pakistan State Oil (PSO) exchange rate,” the representatives of oil sector companies told State Minister for Petroleum Dr Musadik Malik in a meeting.

The meeting was convened to ponder over the issues of the sector, especially exchange rate adjustment and shrinking credit lines of oil companies to import oil due to steep decline in the value of rupee.

Dr Musadik asked the OGRA officials to go for a fair and just formula for exchange rate adjustment as the current formula was based on the PSO exchange rate.

Sources pointed out that if the exchange loss of PSO on fortnightly basis was Rs5/litre, the other oil sector company would be given only Rs5 even if its exchange loss was Rs7/litre. They added that the benchmark exchange rate of PSO did not compensate the other oil companies completely in receiving the full amount on exchange losses following massive rupee depreciation in recent months.

Few days back, Oil Marketing Association of Pakistan (OMAP) had also pointed out that as exchange rate losses were being passed on partially, PSO recently brought this issue to OGRA’s attention.

According to PSO calculations supplied with OGRA, the exchange loss adjustment for PMG and HSD came to Rs16.21 and Rs163.02/litre, respectively, whereas only Rs15.74 and Rs27.80/litre were adjusted for current prices starting on March 1, 2023.

Oil marketing companies (OMCs) would be under a burden in this situation, and would not be able to continue operating with such a price anomaly. It was pointed out that this also goes against the officially approved price structure.

Resultantly, the industry is suffering losses worth Rs35-40 billion, OMAP noted in a letter to OGRA.

The OMAP letter said that the oil marketing sector is still experiencing significant losses and is under a lot of strain. Also, the exchange losses vary based on the products that OMCs import. By applying an exchange loss adjustment through price, OMCs with a greater percentage of imported product received less compensation than entitled.

Because of this occurrence, OMCs and other entities that acquire or sell the local refineries’ output or have minimal or no imports have an unfair and unrealistic advantages.

Sources said that the petroleum minister also assured he would take up the issue of credit lines of the oil sector companies with the State Bank of Pakistan (SBP). “I will hold a meeting with SBP authorities next week,” sources quoting the minister stated.