ECC links OMCs’ margin revision with annual average inflation

ISLAMABAD: The government has linked revision in margins of oil marketing companies (OMCs) on petrol and diesel with annual average consumer inflation, which is likely to increase their profitability by six to eight percent and push up fuel prices, sources said on Wednesday.

The Economic Coordination Committee of the cabinet took the decision during a meeting presided over by Adviser to Prime Minister on Finance and Revenue Hafeez Shaikh.

The ECC approved a proposal by the ministry of energy (petroleum division) for revising margins of OMCs and dealers on motor spirit and high speed diesel on the basis of annual average of the consumer price index (general).

The committee decided to work out margins of OMCs and dealers on the basis of annual average inflation of fiscal year. It also tasked relevant stakeholders, including petroleum, finance, planning, and industry and production divisions, Bureau of Statistics and Oil and Gas Regulatory Authority to finalise recommendations within two months and resubmit the case to the ECC.

Sources said the margins are likely to increase by up to eight percent compared with the petroleum division’s proposal of 9.5 percent increase. The current OMC margin on motor gasoline and high speed diesel is Rs2.64 per litre. After the increase, the margins would be increased in the range of 17 to 22 paisas per litre.

Earlier, the revision in margins for OMCs and dealers was carried out annually in accordance with the consumer price index inflation of variable period. When the last time margin was revised, more than two years of inflation was considered to determine diesel margin.

“The fresh revision had been necessitated by a substantial increase in the cost of doing business due to rise in inflation and devaluation of rupee since the last revision done on 1 July 2018,” the finance ministry said in a statement.

ECC further allowed the ministry of energy to raise financing of Rs136.454 billion and Rs30 billion for adjustment of existing finance facilities of Power Holding Limited (PHL) worked out between the latter and a consortium of local commercial banks in pursuance of separate ECC decisions taken in November 2016 and February 2017 for the purpose of funding repayment liabilities of distribution companies on terms and conditions as approved by the finance division.

Earlier, the ECC was told that terms and conditions of the PHL finance facilities had a five-year tenure, inclusive of two-year grace period, which had been completed, and the installment payments on account of principal portion had become payable.

Under the latest arrangement approved by the ECC, the principal installment payments would be deferred for further two years from the date of execution of fresh facilities.

“This would be a cash neutral transaction as the disbursement of fresh facilities would be used for adjustment of outstanding principal portion of existing PHL finance facilities of Rs136.454 billion and Rs30 billion,” the finance ministry said.

The ECC allowed the importers of used-vehicles to meet any shortfall in arrangement of required foreign remittance for payment of duties and taxes through local sources in case of a scenario where the rupee depreciates or government increases the import duties and/or taxes after the receipt of remittance and before the filing of the good declaration, which results in shortfall of remitted amount vis-à-vis payable duties and taxes. Under a condition, import of used vehicles under personal baggage, transfer of residence and gift schemes require the payment of duties and taxes to be paid out of foreign exchange arranged by Pakistani nationals themselves or local recipients producing proof of conversion of foreign remittance to local currency.

The ECC decision would help clear up a total of 1,017 vehicles currently stuck up at Karachi port because either no foreign remittance had been received or the remitted amount had been rendered insufficient due to depreciation of rupee before the filing or goods declaration or increase in the rate of duty in the Finance Act 2019.

The committee accorded ex-post approval to a statutory regulatory order issued by commerce division on August 21, 2019 for extending till August 31, 2019 the implementation of quality standards on the import of solar equipment into the country. The ECC authorised the ministry of communication/National Highway Authority to proceed for procurement of consultancy services for Section-III Kalkatak-Chitral (48 km) under the Chakdara-Chitral road project (N-45) being funded by EXIM Bank of Korea and loan assistance from Economic Development Cooperation Fund.

The ECC approved a proposal by the finance division for acquisition of 8.5 percent additional shares of Engro Polymer and Chemicals South Africa by Packages Pakistan through AHL Mauritius by enhancing standby letter of credit by $2.7 million, which would bring the aggregate investment of Packages Limited to $17.7 million, with the stipulation that due to the current foreign exchange constraints, Packages Ltd might arrange the required foreign exchange from abroad.

The ECC approved one technical supplementary grant of Rs784 million to pay for increase in the allowances of doctors and another technical supplementary grant of Rs228.547 million to pay for the increase in allowances and stipends of regular and student nurses. The committee approved a technical supplementary grant of Rs255.315 million for the National History and Literary Heritage Division. The ECC approved another technical supplementary grant of Rs75.616 million to National History and Literary Heritage Division. The ECC also approved a technical supplementary grant of Rs14.906 million for the Ministry of Narcotics Control.