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Monday June 17, 2024

Oil industry asks COAS, SIFC to help recover over Rs91bn dues

Chairman OMAP Tariq Wazir Ali has requested SIFC for urgent intervention to help recover exchange losses

By Khalid Mustafa
June 08, 2024
Working oil pumpjacks are pictured on the outskirts of Taft, Kern County, California on September 21, 2023. — AFP
Working oil pumpjacks are pictured on the outskirts of Taft, Kern County, California on September 21, 2023. — AFP

ISLAMABAD: The oil industry has written a letter to the Chief of Army Staff and the forum of the Special Investment Facilitation Council (SIFC) seeking intervention to help recover over Rs91 billion from the government so that the worsening liquidity situation could improve.

In a letter to the SIFC secretariat, Chairman Oil Marketing Association of Pakistan (OMAP) Tariq Wazir Ali has requested SIFC for urgent intervention to help recover exchange losses amounting to Rs26 billion and refunds of sales tax of Rs65 billion. “More importantly, a reasonable amount of funds are also held up in the form of the Inland Freight Equalization Margin (IFEM) that has virtually disturbed the cash flows.”

The OMAP in the letter first appreciated COAS for setting up SIFC to attract new foreign investment and enhance global trust in Pakistan’s economic potential and then pleaded saying that it is imperative to consider the environment for local investors who have already vested substantial resources and demonstrated a readiness to further their investments.

In the letter, the OMAP chairman highlighted the challenges that the oil industry and emerging oil marketing companies are facing because of the structural problems in this sector particularly regarding funds management. The vast sums of money which are necessary to facilitate the terms of foreign investment agreements have been inexplicably withheld by the government authorities. The letter mentions that the oil industry has accumulated a total of Rs26 billion in unrecovered exchange losses due to the shortcomings in the current foreign exchange gains/losses recovery mechanism.

Although the Petroleum Division and OGRA acknowledge the existing flaws in the mechanism and recognise that companies have suffered losses as a result, they are displaying reluctance in addressing the matter promptly and expediting the reimbursement process. These unrecovered amounts constitute a substantial portion of companies’ working capital which is significantly impacting their operational efficiency.

The letter also highlighted that the reduction of the sales tax on petrol and high speed diesel to zero has led to the liability to recover the paid sales tax. Presently the industry is facing the significant impact of Rs65 billion worth of held funds, severely affecting their cash flows. The government authorities acknowledge this amount and the refunds are being delayed due to excessive bureaucratic processes.

The oil marketing companies are experiencing a disruption in their cash flows as the funds are being held up in the form of IFEM. The value of the funds received has seen a substantial decrease because of the delays in the IFEM audit which stretched over a period of 8 years.

The oil marketing sector heavily depends upon imports and transactions in US dollars for imported products, but the delay has reduced the operational efficiency of the oil marketing companies.