ECC proposed to allow recovery of exchange rate backlog to OMCs and refineries

Aftab Ahmed

Islamabad: In a bid to combat impact of COVID-19, Petroleum Division has proposed Economic Coordination Committee to allow Pakistan State Oil including oil marketing companies (OMCs) and refineries to recover backlog of exchange rate gains and losses differential from consumers on imported petroleum products.

The refineries may be allowed to recover exchange rate losses and gains through monthly pricing mechanism.

Oil Companies Advisory Council (OCAC) had taken up the matter with Petroleum Division that refineries should be allowed to recover backlog of exchange rate gains and loss in monthly pricing mechanism.

Oil and Gas Regulatory Authority (Ogra) had allowed the latest available exchange rate on 28 or 29 of every month effective from June 2018 instead of the monthly exchange rate average).

OCAC said that this is acknowledgement of the need to improve the system and bring it at par with the actual as a provisional exchange rate does not capture the actual.

The oil industry body said that taking the latest monthly exchange rate is not addressing the exchange rate exposure. Rather the exchange rate exposure between the rate of pricing and actual exchange rate at the time of payment creates substantial difference in the absolute cost of the import which in turn had the impact on the refinery margins.

It said that refining sector and oil marketing companies (OMCs) had incurred a heavy loss during the last two years due to devaluation of Pak rupee against dollar. Refineries are in deep financial crisis and finding it difficult to continue operations.

Economic Coordination Committee (ECC) had approved the pricing mechanism to recover the actual cost of import in 2011 but due to non-implementation of the decision, these exchange losses could not be recovered.

Keeping in view the position, OCAC has requested to allow OMCs and refineries that they may be allowed to adjust exchange gain loss and other landed import cost differential incurred as per the actual exchange rate on the imported petroleum products in next month’s pricing. However, this adjustment will be based on exchange rate from the actual date of LC S settlement or 60 days from the Bill of Lading whichever is earlier.

This adjustment for the local petroleum products based on Import Parity Price Formula may also be allowed on the basis of PSOs actual weighted average exchange rate of imported products on petrol and high speed diesel (HS).

Petroleum Division has also proposed ECC that backlog of exchange rate gain and loss differential of imported petroleum products may also be allowed to OMCS and refineries through the monthly pricing System.

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