Dealers urge margin revision, OCAC seeks exchange rate method overhaul

KARACHI: The Pakistan Petroleum Dealers Association (PPDA) on Monday urged the government to revise dealer margins on petroleum products, citing unsustainable earnings due to increased operational costs and the impact of illegal petroleum smuggling.

In a letter to Finance Minister Muhammad Aurangzeb, PPDA said that the last time the petroleum dealer’s margin was increased was in September 2023. "Since then, we have experienced a significant increase in various operational costs, including electricity charges, interest rates, labor costs, Oil Marketing Companies franchise fees, and KIBOR rates," the association said.

"Despite our best efforts to adhere to all statutory requirements and operate compliantly, the existing margin has rendered our earnings unsustainable," it noted, and added that additionally, the rampant influx of smuggled illegal petroleum products has dealt a severe blow to both the country’s economy and registered petroleum dealers."

It said that the prevalence of smuggled products at lower prices has led to a drastic decline in petrol pump sales by up to 50 percent. "This detrimental trend not only undermines the petroleum industry but also poses a grave threat to the overall economy of our country."

Given the complexity of the situation, PPDA appealed for a prompt resolution of its grievances and asked the minister to expedite the process of addressing concerns to enable them to sustainably operate in the industry.

"Failure to address these pressing issues may leave us with no choice but to cease our operations, which would have adverse implications for our businesses and the broader economy." Petroleum pricing exchange rate method

The Oil Companies Advisory Council (OCAC) has requested the Oil & Gas Regulatory Authority (OGRA) to alter the methodology used for calculating the exchange rates applied to the pricing of petroleum products.

The OCAC, in a letter to the chairman of OGRA, highlighted concerns regarding the ‘True Up’ method currently employed for determining fortnightly prices and requested a return to the previous methodology, "thereby reverting to a simpler and clearer process."

The oil body said that the exchange rate applicable at the time of pricing was used for price computation in the past. However, effective August 1, 2022, OGRA changed its methodology. Instead of using the latest available exchange rate, OGRA shifted to a 15-day average exchange rate, despite reservations from the Oil Industry.

“This change created exchange rate exposure for the Oil Industry. We understand that using the latest available exchange rate at the date of price change reflects the exchange rate for the upcoming fortnight and would be a better option compared to the current practice of using a 15-day average exchange rate,” it said.

"Since the rupee has currently stabilized, the impact of correcting the pricing mechanism will be negligible. Therefore, the oil body proposed reverting to the system of using the exchange rate applicable at the time/date of pricing change.