Friday June 09, 2023

Oil sector seeks Rs10bn reimbursement for pending price differential claims

May 25, 2023

KARACHI: The oil sector has sought the reimbursement of Rs10 billion in price differential claims (PDC) on petroleum products, which have been pending since 2008, industry officials said on Wednesday. In a letter addressed to the Director General Oil at the Ministry of Energy-Petroleum Division, the Oil Companies Advisory Council (OCAC) has requested the repayment of the outstanding amount. Back in 2004, the then government of President Pervez Musharraf had decided to cap the domestic ex-depot sale price by absorbing the maximum impact of international price hikes through adjustments/reductions of the Petroleum Development Levy (PDL) and cross-subsidisation.

The government also allocated budgetary resources to pay the PDC while passing on only a small portion of the price increase to consumers. This move aimed to shield domestic consumers from oil price shocks in the international market.OCAC's letter seeks the assistance of the Petroleum Division in recovering the pending amount. It says that PDC was imposed between 2004 and 2008, with the industry bearing an amount of Rs291 billion as subsidy to consumers provided by the government.

While the government had previously reimbursed Rs281 billion to the industry, Rs10 billion remains unpaid. The oil sector representative body said the recovery of the outstanding amount has been delayed for over 15 years, during which time the Pakistani rupee has depreciated by approximately 78 percent. In 2008, the exchange rate stood at Rs62.54 per dollar, whereas it presently sits at Rs287.14.

“Consequently, the prolonged delay has resulted in a significant loss of value for the industry.” The oil sector has urged the reimbursement of the pending amount in the next budget to alleviate further burden on the sector. Sources within the oil sector said that the amount has been pending for many years, with numerous pleas to the government going unanswered. Although the government has been approached once again, the chances of recovering this amount appear dim, they added.

Sources said the last government of Pakistan Tehreek-e-Insaf (PTI) had capped domestic petroleum prices in March 2022 before their departure in April of the following year. The PTI government and the subsequent coalition government made partial payments on the accumulated PDC amount of Rs244 billion last year. However, the pending PDC amount from 2008 remains unresolved to this day.