Step against cut in profit: dealers say they won''t lift gasoline from depots

Exactly when the oil marketing companies (OMCs) are protesting with the government functionaries over cutting their profit/margin on petroleum products, dealers announced on Tuesday that they will not lift gasoline from depots to sell in the market.
One member of OMCs delegation that held meetings with government officials to convey that reduced profit/margin were inadequate to keep oil selling operation intact told this correspondent that the dealers'' announcement to stay away from gasoline business could create its shortage in the market in the next few days.
He said that OMCs'' delegation separately met Petroleum Secretary Farruk Qayyum, Industries Secretary Shohab Khawaja and Advisor to Finance ministry Dr Ashfaque Hasan Khan to apprise them of the gravity of the situation. He said that reduction in profit/margin on petroleum products was unwarranted and uncalled for, and the government should review its policy of discouraging OMCs from investing in Pakistan.
It may be noted that the government last week had cut down profit/margin of OMCs on different products. Under the new pricing formula, profit/margin of marketing companies and dealers has been reduced by 22 and 35 percent, respectively. Interestingly, the government did not apply the same formula on itself by cutting down petroleum development levy (PDL). Rather, it resorted to an adverse formula by increasing PDL.
The previous formula, revised in 2000, had resulted in good growth of the industry. It resulted in Rs 110 billion investment in oil marketing besides creating about 9000 new jobs and improving quality of petroleum products. OMCs invested in white oil pipeline from Karachi to Mahmoodkot, and built up new storage facilities at Machike. The new investment improved the standards of retail service sector to contribute to the GDP. OMCs pay taxes of Rs 120 billion annually to the national exchequer.
The first margin reduction was done in March 2006. With the new formula, effectively the margin came down to 2.8 percent, and now with the revised formula margins have come down to around 2.1 percent. For the dealers, the impact is even worse and for this reason have they announced to go on strike.
The government must understand that only reasonable profit/margin can help it check unethical practices of adulteration. Given high cost of inputs, electricity the government move can discourage investment in down stream oil industry. From OMCs'' perspective, it is impossible to sustain business, as the break-even level for doing business is at around Rs 1.67 per litre.