Wednesday September 28, 2022

Delay in exchange rate differential payments perils oil supply: OCAC

September 23, 2022

KARACHI: The government’s foot-dragging on passing on the exchange rate differential to the oil industry is threatening the supply of petroleum products across the country, The News has learnt.

Oil Companies Advisory Council (OCAC) in a communication of the Minister of Finance on Thursday pointed out that the exchange rate differential, which is part of the pricing, had not been passed on to the industry since August 16, 2022.

In order to maintain lower prices, Oil & Gas Regulatory Authority (OGRA) has staggered the recovery of exchange losses incurred by the industry during this period of high fluctuation in exchange rates.

“This delay has added to the financial woes of the industry and is compromising the Industry’s capacity to manage supplies across the country,” the OCAC stated.

“The industry has survived the delay in recovery of exchange losses only because of reduced volumes caused by floods and economic factors, but the industry is currently constrained due to insufficient margins, delayed recovery of exchange losses, continuous fluctuation of rupee, rising financing costs, challenges in confirmation of Letter of Credits, high Turnover Tax, and several other factors,” the OCAC added.

“The current oil marketing companies’ (OMCs) margin of Rs3.68 per litre is insufficient to meet their cost

of doing business and the delay in revision is unfairly burdening the industry in order to maintain lower prices.”

Oil body stated that the matter of revision of OMC Margin was deliberated in detail in a meeting held at the Petroleum Division on August 2, 2022.

During the meeting, it was agreed that the OMCs margin on HSD (high-speed diesel) and MOGAS (petrol) would be revised to Rs6 per litre effective September 1, 2022; however, despite the assurances provided to the industry and continuous follow-up, the OMCs margin has not been revised till date, whereas the dealers

margin was revised in August 2022.

The oil industry body requested the finance minister for immediate revision of OMCs margin as shifting to a deregulated regime without revision of OMC Margin would not be possible.

It said that margins of dealers and OMCs had always been revised collectively, this practice was not just for the sake of uniformity but because it was understood and appreciated that cost of doing business for OMCs and dealers were aligned and any increase in costs was applicable for both parties.

“The OMCs are exposed to additional significant exposures and costs from which the dealers are protected,” the OCAC said adding, “The standalone increase in dealer margin (Rs7 per liter) has set an undesirable precedence and is also adding to the already prevalent imbalance in favour of the dealers”.