Maintaining Oil Prices to hit oil industry’s cash flow
Ibn-e-Ameer
The government has burdened the oil industry in Pakistan with multibillion rupees by maintaining oil prices. This will put a negative financial impact on oil refineries and oil marketing companies. The government has recently announced to maintain current oil prices.
Ogra had proposed to hike the prices of petrol by Rs 11.53 per liter from November 1, 2021.
But, the prime minister had turned down the proposed increase in oil prices.
The government was to adjust rates of petroleum levy (PL) and general sales tax (GST). The purpose was to absorb the impact of rising global prices.
Yet, the government had not made any change in rates of petroleum levy and general sales tax (GST).
The government created a price differential that oil refineries and OMCs will claim later. This will have a negative impact on the cash flow for oil industry in Pakistan.
The refineries and oil firms were also facing another issue of sales tax at the import stage.
“We are paying 17 percent tax on the import of crude. But the government has reduced sales tax on petrol and diesel. We are unable to recover this sales tax and will have to file for a refund, oil industry officials said.
This is a very difficult situation now for the oil industry.
The impact will depend upon every refinery’s production. Their impact on PRL will be about one billion rupees a month, officials said.
Pakistan State Oil (PSO) had asked Petroleum Division to adjust different cos heads.
It forwarded detailed price computations to OGRA for review.
PSO bases the weighted average premium of PMG & HSD on imported cargoes imported after October 14, 2021. It is expected to be completely discharged by October 31, 2021.
It also calculates incidental costs, Ocean losses and Custom Duty have based on the C&F values of cargoes.
PSO wants to actualize these costs in the next pricing in line with the letter of the Energy Ministry.
Moreover, the change component of HSD includes Cost& Freight related exchange rate adjustments.
It includes adjustments of import-related incidentals & custom duty of previously priced cargoes.
This is based on the relevant ECC decision dated April 09, 2020. This is for your information and necessary action.
Premier directed to maintain the prices of the petroleum product at the current level. Finance Division said that these products included MS, HSD, SKO, and LDO.
Meanwhile, it requested OGRA to convey OMCs and relevant oil industry (local refineries) to be duly compensated in case of any price differential (as per OGRA’s calculation), during the intervening period, with the approval of the competent forum.
It requested OGRA to take further necessary action. It asked to make sure that no supply disruption occurs in the availability of these products.
