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Oil industry seeks pool system to offset forex losses

By Tanveer Malik
December 03, 2023

KARACHI: The oil industry has called for the implementation of a pool system to compensate verifiable foreign exchange losses incurred by oil marketing companies (OMCs) under the existing policy for determining ex-refinery prices of petroleum products.

Oil Marketing Association of Pakistan (OMAP) in a letter to Minister Energy said the existing policy for determining ex-refinery prices of petroleum products lacks clarity, leading to several operational challenges for the OMCs and a pool system should be implemented to compensate verifiable foreign exchange losses.

The OGRA headquarters in Islamabad. —APP File
The OGRA headquarters in Islamabad. —APP File

Association said that despite numerous meetings, reminders, and appeals, the outcomes have unfortunately been unproductive, leaving the OMCs in a precarious situation.

"The gravity of these issues demands immediate attention, as the delay in resolution is pushing OMCs to the brink of survival."

The OMAP said a comprehensive audit is recommended to assess the distribution of losses from 2020 onwards, ensuring a fair and transparent process. "It is suggested that the price mechanism of foreign exchange adjustments be revised to account for significant fluctuations in exchange rates."

The OGRA's formal communication to OMCs detailing pending amounts will facilitate accurate representation in Balance Sheets, strengthening their financial position, it added.

Oil body said the imposition of an extra sales tax on petroleum products has intensified the financial difficulties faced by OMCs. “We urge a thorough evaluation of this policy, considering its impact on the industry. OMCs are grappling with substantial amounts stuck in various tax adjustments, and swift refunds are requested to alleviate financial strain.”

Association noted that disparities in premiums between PSO and other OMCs, particularly in HSD, pose significant challenges. An analysis reveals substantial financial losses for OMCs, jeopardizing industry stability and urgent measures are needed to rectify this imbalance and ensure a fair playing field.

“The cumulative effect of these issues has created an alarming situation for OMCs. Financial instability, disrupted balance sheets, and restricted credit lines are pushing us toward a perilous tipping point. The transition from the green list to the gray list in banking institutions is exacerbating the challenges, necessitating an immediate increase in approved limits for LCs,” OMAP said.

In light of these critical circumstances, OMAP requested for a meeting with minister to discuss these issues in detail and sought prompt intervention for their resolution. Timely action is imperative to prevent further damage to the industry and safeguard the livelihoods of millions associated with it.