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January 27, 2021

OMCs, dealers’ margins: Another hike in petrol, diesel prices on the cards

Top Story

January 27, 2021

ISLAMABAD: After recent surge in power tariff by Rs1.95 per unit and twice increase in prices of petroleum products in the current month, January, now the government is set to further increase the prices of petrol by Rs1.03 to whopping Rs110.23 per litre and diesel (high speed diesel) by Re0.95 per litre to Rs114.14 per litre.

The Petroleum Division has submitted a summary to the Economic Coordination Committee (ECC), scheduled to meet on Wednesday (today), seeking the raise in margins of oil marketing companies (OMCs) on motor spirit (petrol) by Re0.45 per unit and increase in dealers’ commission margins by Re0.58 per litre. Likewise, the summary also asks for a raise in OMCs margins on high speed diesel by Re0.45 per litre and dealers commission profit by Re0.50 per litre.

According to a copy of the summary submitted to the ECC, the OMCs margin on one litre of petrol will increase by Re0.45 per litre to Rs3.26 per litre from existing Rs2.81 per litre, and dealers commission will go up by Rs0.58 per litre to Rs4.28 per litre. Similarly, the OMCs margins on diesel will increase by Re0.45 per litre to Rs3.26 from existing Rs2.81. The dealers’ commission on diesel will also go up by Re0.50 per litre to Rs3.62 per litre from current Rs3.12 per litre. The government, earlier on January 16, 2021, increased the petrol prices by Rs3.20 per litre by jacking up its price to Rs109.20 per litre from earlier Rs106 per litre, and diesel by Rs2.95 per litre to Rs113.19 from Rs110.24 per litre.

On January 1, 2021, the government raised the petrol price by Rs2.31 per litre to Rs106 per litre from earlier Rs103.69 per litre. And it also scaled up the diesel price on January 1 to Rs110.24 per litre from the earlier Rs108.44 per litre with an increase of Rs1.80 per litre. So, in the first 16 days of the current month, the government has already increased the petrel price by Rs5.51 per litre and diesel by Rs4.75 per litre. The issue of increase in OMCs margin and dealers’ commission by 6.58 per cent has been pending since Dec 1, 2019, which was recommended on the basis of average inflation CPI by the Planning Commission for the whole period during April-May 2019. It argued that the OMCs were also claiming that their margins were required to be revised in July of each year.

The petroleum division has earlier reported to the ECC that while reviewing the OMCs and dealers’ margin on Nov 6, 2019, the ECC had approved revision of margins for the OMCs and dealers on both petroleum products on the basis of 6.58 per cent average rate of inflation, as recommended by the Planning Division for the period between April 2018 and May 2019, with effect from Dec 1, 2019.

The ECC had also set up a committee, led by Special Assistant to the Prime Minister on Petroleum Nadeem Babar and comprising the secretaries of Petroleum, Finance and Planning and Development and top members from Ogra and the Pakistan Bureau of Statistics (PBS) and an academic or retired practitioner from the private sector as members.

The committee was required to revisit the existing mechanism for determination of margins for the OMCs and dealers on petroleum products “in a holistic manner and devise a revised mechanism for the purpose of ensuring interests of all stakeholders particularly the consumers”.

The committee was to submit its report to the ECC within two months. The petroleum division was required to provide secretariat support to the committee. The ECC also said that in future the applicability of a formula should be from July to June of each year.

The Petroleum Division had reported that as ordered, it arranged three meetings of the committee. The committee decided to seek the consent of the Institute of Chartered Accountants to conduct proposed study. Only the Institute of Cost and Management Accountants of Pakistan (ICMAP) expressed its consent at the cost of Rs4.50 million, while the Institute of Chartered Accountants of Pakistan (ICAP) regretted. Therefore, the Pakistan Institute of Development Economics (PIDE) was also requested as only a single institute, ICMAP, expressed its consent for the said study. The PIDE expressed its consent at a cost of Rs2.50m.

The first study on margins was also conducted by the PIDE in 2014. The petroleum division said Ogra, being the licensing authority of OMCs, regretted funding the study, while the planning division was also reluctant to meet the cost of the study from its budgetary resources. “Meanwhile, on account of Covid-19, nobody was willing to do field work until recently,” claimed the Petroleum Division, adding that the PIDE, being a government body, had been asked to update its previous study along the lines of terms of reference for devising a formula to revise margins in future, utilising cost accountants’ expertise.

In order to avoid any further delay, the Petroleum Division has now sought that the funding be met through the unspent Training Fund, maintained by the Petroleum Division under the Petroleum Policy 2012 for hiring consultants, professionals and for preparing policies on development of the sector.