Sunday October 02, 2022

After petroleum dealers, OMCs seek a raise in margins

July 20, 2022

KARACHI: Oil marketing companies (OMCs) have sought increase in margins on petrol and diesel to Rs7 per litre, following in the footsteps of petroleum dealers’, which could increase the cost of the essential fuels for end consumers.

The demand of OMCs came only a couple of days after government reached an accord with the petroleum dealers when they sought a raise in their margin, and announced to take the accord to the cabinet.

OMCs demanded for equalisation of OMC and dealer margins, when Oil Companies Advisory Council (OCAC) – a representative body of oil sector companies – sent a letter to the Ministry of Energy on Tuesday.

OCAC recognised the timely reimbursement of price differential claim (PDC), which was critical in enabling the industry to ensure uninterrupted fuel supplies.

However, after the culmination of PDC, OMCs were looking towards the government for immediate relief due to the progressive depletion in their financial position following increase in costs.

OCAC sought the equalisation of the OMC and dealer margins by revising OMC margin of Rs7 per litre from the existing 3.68 per litre on both-motor gas and diesel.

The council said that there were significant exposures and costs that OMC’s incurred to secure a smooth oil supply chain, from which dealers were protected; “therefore, there was no justification for a lower OMC margin as compared dealers”.

OCAC listed the costs that OMC’s were currently covering from their own margins as at today’s price the turnover tax of 0.5 percent consumes 35 percent of the OMCs’ margin, thereby significantly diminishing the profitability of OMCs.

Likewise, significantly increasing interest rates and increased letter of credit (LC) charges have severely impacted the industry’s profitability as approximately 65 percent of all motor fuels were imported.

OCAC also said that port congestion resulted in demurrages, which added to the charges. The industry paid over $27 million on account of demurrage over the last one year, with no end in sight on this account even in the medium-term, it noted.

All other ancillary costs, eg electricity, wages, bank borrowing charges etc that impact the dealers in running of their daily businesses impact the OMCs in a bigger way. In fact, with credit lines in place, part of the dealer financing was being paid for by the OMC. “It is evident that immediate action is required to ensure survival,’ the oil body said.

Sources in the oil sector said government agreed to enhance the dealers’ margin by doubling it and if it also agreed to enhance the margin of OMCs, the total increase would be part of the prices of petrol and diesel, which meant these products would be become costlier for the end consumers.