Oil Marketing Companies in Pakistan Urge Government to Increase Margins

Oil Marketing Companies (OMCs) in Pakistan have urgently appealed to the federal government to increase their margins for MS petrol and high-speed diesel (HSD) in response to severe operational challenges and financial constraints. The Oil Marketing Association of Pakistan (OMAP) conveyed this plea in a letter to the Chairman of the Oil and Gas Regulatory Authority (OGRA).

OMAP’s request emphasized the necessity for margins that reflect licensing conditions, operational realities, and reasonable shareholder returns. The association warned that the petroleum sector is on the brink of collapse and that immediate action is needed to prevent widespread disruption.

The letter highlighted several key financial pressures faced by OMCs:

• A markup rate of 22 percent per annum results in a cost of approximately Rs. 3.45 per litre for holding a 20-day stock and an additional Rs. 1.50 per litre for a 10-day stock.
• The industry has seen a 6-10 percent increase in Letter of Credit (LC) confirmation costs over the past year, adding Rs. 1.61 per litre based on a 60-day LC with an import value of Rs. 200 per litre.
• A turnover tax of 0.5 percent translates to Rs. 1.37 per litre in operational expenses.
• Demurrage charges contribute an estimated Rs. 0.5 per litre.

OMAP further noted that inflation, high energy costs, and increased utility expenses have significantly escalated operating costs, including selling, marketing, administration, and other essential activities. Additionally, a liquidity crunch caused by substantial funds tied up in the Inland Freight Equalization Margin (IFEM) and delays in sales tax adjustments and handling costs add another Rs. 2.15 per litre sold.

To address these challenges, OMAP proposed a revised OMC margin of Rs. 19.52 per litre. The association argued that this adjustment is crucial for the survival and efficient operation of petrol companies in Pakistan, ensuring they can maintain quality service standards for their customers.

“The petroleum sector is nearing collapse, and urgent action is needed to avoid chaos,” stated OMAP. The association called for the government to act swiftly to stabilize the sector and support the continued provision of essential petroleum products across the country.