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Oil Industry Concerns Over Restrictive Pricing
The oil industry in Pakistan has raised serious concerns over the restrictive pricing of motor fuels, which has reportedly caused significant financial losses. The Oil Companies Advisory Council (OCAC), representing refineries and oil marketing companies (OMCs), expressed these concerns in a letter to the Oil and Gas Regulatory Authority (OGRA) chairman. The council warned of potential consequences if the pricing issues were not addressed promptly.
Losses from Reduced Customs Duty and Freight Margins
The OCAC highlighted a deviation from the government-approved pricing formula, effective from October 16, 2024. In particular, customs duty on high-speed diesel (HSD) was reduced from Rs15.18 to Rs13.26 per litre, a Rs1.92 decrease. According to the OCAC, this reduction will result in a loss of around Rs700 million for the industry during the second half of October.
In addition to customs duty cuts, the inland freight equalisation margin (IFEM) was also reduced. The IFEM for HSD was slashed by Rs3.04 per litre and for petrol by Rs4.07 per litre. These cuts were made by including an adjustment to the refinery regulatory duty of Rs3 billion. This, the industry claims, will lead to a less-than-expected recovery of freight costs, creating additional financial pressure on oil marketing companies.
Call for Consistent Pricing Adjustments
The OCAC urged OGRA to ensure that price adjustments are spread evenly across multiple pricing periods to avoid sharp fluctuations and financial exposure for the industry. The letter highlighted that OGRA has always insisted on spreading adjustments evenly, particularly related to recoveries for pipeline losses and other costs.
The advisory council emphasized that manipulating oil prices is unsustainable and could lead to further challenges for an industry already struggling with various issues. These include high financing costs, smuggling, insufficient profit margins, high turnover tax, and the impact of sales tax exemptions.
Industry Urges Price Formula Implementation
The OCAC called for an immediate revision of prices based on the government-approved formula to ensure the oil sector’s viability. It stressed the importance of implementing the pricing formula in its true letter and spirit to avoid supply chain disruptions.
The council also pointed out that without proper pricing mechanisms, the industry’s challenges could worsen, threatening the overall stability of the oil supply chain in Pakistan.
