The government is likely to fix the margin of the oil marketing companies (OMCs) for high speed diesel (HSD) and motor gasoline between Rs 1.46 and Rs 1.97 per litre from January to December 2009. The floor will be at $40 per barrel and ceiling at $80 per barrel crude oil price with the objective of recovering the expenses and return on equity.
The same formula will be implementable for dealers' margins that recently protested against lower margin and expressed reluctance at taking deliveries due to the lower margins. Sources said that Petroleum Ministry had worked out different proposals in consultation with the OMCs to table before the next meeting, on January 9, of Economic Co-ordination Committee (ECC) of the Cabinet for approval.
The Petroleum Ministry has worked out the proposals to provide level playing field for doing business in the current scenario after the global oil prices declined. In the first stage, it is proposed to fix margin of OMCs at Rs 1.64 per litre to recover the expenses and return on equity based on Rs 0.62 per litre expenses, Rs 0.50 per litre inventory carrying cost and 18 percent return on the equity. The said proposal will be implementable for one calendar year--from January to December 2009.
It is also being considered to introduce variable margins by placing floor at Rs 1.46 per litre ($50 per barrel crude oil) and cap of Rs 1.97 per litre ($80 per barrel crude oil price). The said proposal would also be implemented from January-December 2009 to recover the expenses and return on the equity. The other proposal for consideration before the ECC meeting on January 9 would be to place a floor at Rs 1.46 per litre ($40 per barrel) and a ceiling cap at Rs 1.86 per litre ($70 per barrel).
Sources said that the OMCs have noted that in the prevailing economic situation, where the rising cost of doing business is evident, cost that includes interest rate, inflation, and the rupee depreciation, it would be preferable to introduce variable margins at current formula with floor at Rs 1.46 per litre ($50 per barrel crude oil price) and ceiling at Rs 1.97 per litre ( $80 per litre crude oil price). OMCs have recommended the said proposal, adding that it would ensure sustainability and growth of the said sector in Pakistan.
At present, the margin of OMCs is Rs 0.73 per litre motor gasoline, Rs 0.80 per litre HOBC, Rs 1.07 kerosene oil, Rs 0.99 per litre light diesel oil and Rs 1.17 per litre High Speed Diesel (HSD).OMCs are currently are of the view that it is very difficult to run their business with the existing margins on different petroleum products. The OMCs also claim that they have faced the inventory losses in line with the reduction in oil prices in the domestic market.
In the existing oil pricing formula, there is an upper cap at $100 per barrel crude oil for OMCs and dealers margins that Economic Co-ordination Committee (ECC) of the Cabinet approved on July 31, 2008 when the crude oil price shot up to $147 per barrel in the international market. OMCs margin is 3.5 percent whereas the dealers' margin is 4 percent but due to percentage based margin formula, they witnessed a reduction in their margins in the domestic market due to non existence of lower cap.
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