Oil sector rejects Ogra’s proposed margin revisions, calls for higher adjustments

KARACHI: The oil sector has rejected the proposed revised margins by the Oil & Gas Regulatory Authority (Ogra) for oil marketing companies (OMCs) and petroleum dealers.

The representative bodies of petroleum dealers and OMCs, namely the Pakistan Petroleum Dealers Association (PPDA) and the Oil Companies Advisory Council (OCAC), have opposed the proposed margins on petroleum products.

“We do not accept the proposed margin calculation without consultation,” the PPDA said in a letter to Ogra’s chairman. They argued that their demands and expectations were significantly higher than the calculations made by Ogra a few days ago.

The association urged Ogra to consider reasonable margins that account for the cost of doing business, including electricity, salaries, utilities and the high costs of construction and maintenance, which need to be recovered over time from the margins.

They pointed out that digitalization and automation were not part of their demands and expressed confusion over how these costs were included without discussion. The PPDA added that the margin revision has already been delayed despite prior commitments.

The association demanded an immediate revision of the margin to 7.0 per cent of the fuel price, which equates to Rs17 per litre at current rates, to ensure the viability of their businesses. “If the margin is insufficient to operate, it could drive dealers toward unethical business practices, which we do not support,” the association stated.

In rejecting the proposed margin, the PPDA insisted that dealers require a net margin of Rs17 per litre, excluding the costs of digitalization. “If digitalization costs are included in this margin, we will not accept it,” they warned.

Recently, Ogra recommended an increase in margins for OMCs and petroleum dealers, proposing to the Petroleum Division that the margin on high-speed diesel (HSD) and petrol be raised to Rs9.88 per litre from the current Rs7.87 per litre, representing an increase of Rs1.35 per litre for OMCs. For petroleum dealers, Ogra suggested a Rs1.4 per litre increase, raising the margin to Rs10.01 per litre from the existing Rs8.64 per litre.

Ogra said that the proposed margin adjustment includes an additional Rs0.5 per litre for OMCs and Rs0.25 per litre for dealers. This increase is intended to cover costs associated with the digitalization and automation of fuel pumps over the next three years, based on data provided by Pakistan State Oil (PSO).

The OCAC also opposed the proposed margin for OMCs, stating that it would not adequately address the cost of business. “Ogra has proposed an increase of only Rs1.35 per litre in OMC margins. This increase supposedly includes Rs0.5 per litre for facilitating the digitalization and automation of fuel pumps,” the OCAC noted, highlighting that the cost of implementing digitalization and automation across all fuel pumps is expected to exceed $120 million, making the Rs0.5 per litre allocation insufficient to recover this cost.

After accounting for the increase related to the digitalization and automation of fuel pumps, Ogra has effectively proposed only Rs0.85 per litre, significantly lower than the OCAC’s recommendation of Rs4.78 per litre. “The increase of Rs0.85 per litre translates to an 11 per cent increase, which does not even cover the impact of inflation,” the oil body stated.

It emphasized that the industry is severely constrained by factors such as smuggling, high financing costs, sales tax exemptions, high turnover tax, insufficient margins, and several other unresolved issues that have been repeatedly communicated to the relevant authorities.