Ogra urges refineries to strengthen agreements with OMCs

KARACHI: The Oil and Gas Regulatory Authority (Ogra) has advised local refineries to enhance their agreements with oil marketing companies (OMCs) by incorporating legally binding clauses to ensure a structured and enforceable framework for prioritising the upliftment of locally produced petroleum products.

The regulator said that these agreements between refineries and all categories of consumers are commercial in nature and governed by Rule 9 and Rule 53(iv) of the Oil Rules, 2016 as well as the conditions outlined in their licences. Furthermore, Condition (ii) of these licences mandates refineries to comply with directives issued by Ogra from time to time, according to an official letter sent to all refineries in the country on Friday.

Ogra highlighted that the standard operating procedures (SOPs) of the Product Review Meeting (PRM), which outline a structured process for assessing the insufficiency of local production before approving imports, were explained to all refineries during a meeting held on March 3 in Karachi. The necessity of incorporating a ‘take or pay’ clause in agreements between refineries and OMCs was duly acknowledged, the regulator stated.

The regulator clarified that applicable rules require an assessment of insufficiency in local production rather than a deficit before approving imports. “It is important to differentiate between the two: insufficiency refers to an inadequacy in meeting demand, whereas deficit implies a quantifiable shortfall. The sale and supply of petroleum products to OMCs is a commercial matter and does not fall under Ogra’s jurisdiction,” it noted.

However, Ogra emphasised that it is actively ensuring local product allocation remains the first priority before any import-related decisions are made. It also rejected the argument that refineries have no responsibility in ensuring the prioritisation of local upliftment, stating that such a stance is inconsistent with regulatory obligations. “To effectively fulfil these obligations, refineries must improve their agreements by incorporating legally binding clauses that ensure a structured and enforceable framework for prioritising local product upliftment,” the regulator asserted.

A few days ago, the Oil Marketing Association of Pakistan (OMAP) expressed serious concerns over the proposed imposition of the take or pay clause in the Sales Purchase Agreements (SPAs) between refineries and OMCs. OMAP urged Ogra to reconsider its stance, warning that such a clause poses significant risks to the financial sustainability of OMCs, which are already struggling with multiple unresolved issues awaiting regulatory redress.

The association argued that Ogra, as the custodian of fair regulatory practices, is moving forward with the clause without adequately considering the financial challenges and market realities faced by OMCs. It warned that the take or pay arrangement would primarily benefit refineries and large OMCs, strengthening their monopolistic control over the oil sector at the expense of smaller players. Such a move, OMAP cautioned, would stifle competition, discourage new entrants and ultimately harm the overall efficiency of the petroleum supply chain.