OMCs oil Margins: OCAC Expresses Serious Concerns over refusing to increase
Dealers Margins increased to Rs 7 per litre on petrol and diesel
The Oil Companies Advisory Council (OCAC) has expressed serious reservations about approving a standalone revision to the Dealers Margin, which will take effect on August 1, 2022.OCAC wants the government to hike OMCs oil margins.
Recently, the government approved raising the dealers’ margin to Rs 3 per litre, bringing the overall amount to Rs 7 per litre.
The Margins of Dealers and OMCs have previously been revised collectively, according to OCAC, on behalf of Oil Marketing Companies (OMC), not only for the sake of uniformity but also because it is understood and appreciated that the cost of doing business for OMCs and Dealers is aligned. Therefore, both OMCs and Dealers are affected by any increase in expenses.
It is also pertinent to mention that OMCS are exposed to additional significant exposures over not increasing OMC margins and, however, raised margins of dealers.
This action will further add to the already prevalent imbalance in favour of the Dealers.
It reiterated that the OMC oil margins are insufficient to cover costs that have not yet been included in pricing and some high prices that are covered through margin.
According to OCAC, maintaining 20 Days, Stock Cover & Pipeline Deadstock would cost about 70% more financing than the OMCS.
Cabinet approves increase in OMCs Oil Margins
It further said that turnover tax — at today’s price, the turnover tax of 0.5% consumes around 30% of the OMCs oil margins, thereby significantly diminishing OMCs’ profitability.
Another issue that has raised the cost of doing business for OMCs is demurrages.
It claimed that delays in vessel berthing due to port congestion have led to demurrages that also reduce the OMCs oil margins.
Additionally, it stated that LC Confirmation Charges account for roughly 65% of all imported motor fuels. As a result, LC confirmation charges have increased significantly and have severely impacted OMCs’ profitability.
OCAC recommended that the OMCs oil Margins be revised to Rs. 8.85 per litre for both PMG and HSD, effective August 1, 2022, based on the current Global and Local scenario.
This revised OMC margin proposal is based on data from the top five OMCs, PSO, SPL, TPPL, APL, and GO, which account for about 90% of the market.
The aforementioned makes clear that immediate action is necessary to ensure the survival of OMCs, and OCAC requested that the OMC Margin be revised immediately.
In a recent meeting, in a summary move to Economic Coordination Committee (ECC), the petroleum division had proposed to increase dealers’ margins from Rs 4.90 per litre to Rs 7 per litre on petrol and Rs 4.13 per litre to Rs 7 per litre on high-speed diesel (HSD).
The petroleum division had also proposed to raise margins of Oil Marketing Companies (OMCs) to Rs 7 per litre on petrol and diesel due to the high cost of doing business, turnover tax, and other financial cost issues.
The petroleum division also stated that OMCs had low margins on petroleum products despite Pakistan’s higher business costs.
Pakistan State Oil (PSO), a government-run oil marketing company, provides a sizable portion of the country’s oil supply. It is also the largest supplier, distributor, and importer of oil in Pakistan to meet the strategic demands of the country.
Since its receivables had grown to over Rs 600 billion and it was experiencing a liquidity crisis, it was also dealing with a significant problem of circular debt.
PSO has been struggling for a long to recover receivables from its clients. But they have been reluctant to pay bills for fuel supplies.
It imports LNG from Qatar which had put an additional burden on it due to non-payment of dues by SNGPL.
