ECC approves revised fuel subsidy payment method on sale

KARACHI: Economic Coordination Committee (ECC) of Cabinet on Tuesday approved revised mechanism for reimbursement of Price Differential Claim (PDC), under which the payment would be due on sale of petroleum products rather than procurement, while an additional Rs11.73 billion was also allocated for it.

According to approved summary for revised mechanism, the details of PDC disbursed to Oil Marketing Companies (OMCs) and refineries will be submitted by Oil & Gas Regulatory Authority (OGRA) to ECC through Petroleum Division along with the estimated demand of PDC for the next fortnight. Earlier, ECC had approved a special procedure to pay the PDC speedily, while giving go-ahead to opening of a special Assignment Account with Pakistan State Oil (PSO) for its own claims and issuance of PDC claims to the other OMCs and refineries.

Initially, ECC had also green-lit a provision of Rs20 billion through a supplementary grant for making payments pertaining to the period of November (1-4), 2021, and current month swiftly to OMCs/refineries to avoid shortage of petroleum products in the country with approval that proposals for further supplementary grants, if any, will be submitted to the ECC. According to the sanctioned summary, PSO’s take was that PDC was generated through sale of petroleum products therefore, OMCs would be at loss if PDC reimbursement was based on procurement and not sale.

Moreover, it might make private OMCs to stop selling products in the market, the PSO said and added that consumers would only realise the benefit of PDC when the product was sold by OMCs and mere procurement would not be sufficient. PSO recommended that PDC may be reimbursed on sale rather than procurement. OGRA seconded PSO's stance and recommended PDC disbursement on sales.

OGRA further proposed that details of PDC disbursed to OMCs/refineries shall be submitted by OGRA to the ECC through Petroleum Division along with estimated demand of PDC for next fortnight.

In view of concerns raised by PSO and other OMCs, Petroleum Division amended the PDC payment mechanism.

According to the summary, oil prices have further increased during current fortnight (Arab Light Crude hit $118/bbl), thereby PDC has been estimated by OGRA at Rs31.73 billion (Rs2.60 billion for 1-4 Nov, 2021 and Rs29.13 for March 2022) as against the allocated sum of Rs20 billion.

Therefore, there was a need of additional Rs11.73 billion allocations through supplementary grant. ECC, while giving approval to the summary of Petroleum Division, consented to revised mechanism with the change to the previously approved mechanism: that PDC would be applicable on sale of petroleum products rather than procurement. ECC also accepted Petroleum Division’s demand for additional Rs.11.73 billion through supplementary grant to meet the expenditure on payment of PDC up to 31 March, 2022.