OMCs pocketed billions from oil consumers

Aftab Ahmed

The Oil Marketing Companies (OMCs) have pocketed billions from the oil consumers on account of margins due to flawed formula based on Consumer Price Index (CPI).

The formula was approved by the previous government of PML-N that had linked the margins increase with one month CPI rather than taking into account of average CPI for the entire year. The Planning Commission had exposed it in a recent meeting of the Economic Coordination Committee (ECC) of the cabinet.

After coming to know, economic managers refused to give go-ahead to increase margins proposed by the Petroleum division and rather margins were increased in line with the proposal of the Planning Commission. The PTI government has also constituted a committee to devise a new mechanism to set the margins of OMC and dealers.

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The Petroleum Division also proposed to ECC that OMC margins on petrol and high-speed diesel may be jacked up by Rs0.25 per litre while dealer margins may be increased by Rs0.34 per litre and Rs0.29 per litre for petrol and diesel respectively and. It was linked with CPI for April 2019 at 8.8 per cent rather than taking into account the CPI rate for the entire year.

During the discussion, however ministry of Planning, Development, and Reform exposed it saying that the average inflation of the whole period from April 2018 to May 2019 was 6.58 per cent and that may be taken into account for the determination of the margin of OMCs and dealers on petrol and high-speed diesel instead of taking 8.8 per cent for April 2019.

However, the Petroleum division said that the proposed point of view is contrary to the mechanism approved by the economic coordination committee (ECC) on October 30, 2014, for revising margins on a CPI basis which is in line with the Monthly Review of Price Indices published by the Pakistan Bureau of Statistics (PBS).

The ECC was informed that PBS published three main types of indices under CPI for April 2019 was as CPI general at 8.8 per cent, CPI food 8.6 per cent, and CPI non-food 9 per cent year on year basis.

This analysis shows that CPI (Food) is irrelevant in the case while other indices are higher than the CPI (general). Therefore, the said CPI had been taken as the base for the determination of proposed margins. Planning Commission had argued that average CPI does not fall in any of this category of indices.

Chairperson Ogra argued that any increase in OMCs and dealers margin may affect the consumers. However, a substantial increase in exchange rate had also affected OMCs and dealers badly as their storage cost as well carrying cost had been increased.

Therefore, OGRA supported the proposed increase in the margins of OMCs and dealers. The finance division was of the view that the proposed increase in petrol appears to be on the higher side when compared with the increase as approved in the last year.

It was suggested that the proposed increase in petrol was required to be rationalized as inflation in recent times is being attributed to an increase in petroleum prices.

The economic decision-making body observed that the proposed margins are more than 9 per cent which is quite high and it will affect consumers badly. It was further noted that the average inflation of the whole period from April 2018 to May 2019 was 6.58 per cent that could be taken into account for the determination of margins of OMCs and dealers on petrol and high-speed diesel. It was also suggested that a committee may be constituted to revisit the existing mechanism for the determination of margins.

The economic decision-making body had approved the revision in margins for OMCs and dealers on petrol and high-speed diesel on the basis of average inflation for the whole period from April 2018 to May 2019 based at 6.58 per cent effective from December 2019.

The ECC also formed a committee under the chairmanship of special assistant to the prime minister on Petroleum with secretaries petroleum, finance, planning, OGRA, PBS and one representative from the private sector.

This committee will devise a revised mechanism for the purpose of ensuring the interests of the consumers. The ECC also directed that in future the applicability of the formula should be from July to June.