Oil sector seeks timely margin revision to sustain financial health

KARACHI: The oil sector has called for an annual adjustment in margins by proposing an increase of Rs10 per litre for oil marketing companies (OMCs).

In a letter addressed to the minister for petroleum, the Oil Companies Advisory Council (OCAC) highlighted the need to revise OMC margins. The last adjustment was made in September 2023, setting the margin at Rs7.87 per litre. However, a subsequent revision due in September 2024 remains pending.

The OCAC noted that in June 2024, it had recommended a revised margin of Rs12.65 per litre -- an increase of Rs4.78 -- based on critical cost considerations. These included financing costs for maintaining a 20-day stock cover, turnover tax, handling losses, demurrage charges, financing costs for unadjusted GST (up to June 2024), and operational expenses incurred by OMCs.

Following extensive discussions with the Oil and Gas Regulatory Authority (Ogra) and the Petroleum Division, the industry has revised its proposal. It now suggests increasing the OMC margin to Rs10 per litre -- an increase of Rs2.13 per litre -- and initiating recovery for demurrage costs and unadjusted GST through the Inland Freight Equalisation Margin (IFEM).

The OCAC said that while the Economic Coordination Committee (ECC) approved a summary for GST recovery via IFEM, the accompanying proposal for margin revision was not considered at the time.

The delay in revising margins, the body noted, has resulted in substantial financial losses for OMCs. It urged the minister to approve the revised margin at the earliest opportunity.

The council also thanked the minister for facilitating the recovery of GST exemption impacts through IFEM. “This timely intervention has not only mitigated severe financial stress on the sector but also reaffirmed the government’s commitment to ensuring the financial viability of the downstream oil industry,” it said.

The OCAC added that the move had particularly bolstered investor confidence in the refining sector and supported the implementation of the Pakistan Oil Refining Policy, 2023.

It further requested the minister’s support in formalising the GST exemption through appropriate inclusion in the Finance Bill. Both measures, it stressed, are essential for ensuring the financial sustainability of the downstream sector and maintaining an uninterrupted fuel supply nationwide.