Fixing OMCs, dealers' margins: government working to revise oil pricing formula

The government is working on revising the current oil pricing formula to fix the margins of oil marketing companies (OMCs) and dealers by capping upper and lower levels at $70 and $80 per barrel.
Sources told Business Recorder that the Petroleum Ministry was considering a few proposals to create level playing field for the petroleum industry, and would move a summary to the Economic Coordination Committee (ECC) of the Cabinet for approval to place lower and upper caps for OMCs and dealers' margins.
They said that the ministry is set to make changes in the existing oil pricing formula not only to provide level playing field for business but to protect the consumers' interests.
A meeting was held here on Friday in Petroleum Ministry to seek inputs from the OMCs on reconsideration of the margins. Advisor to Prime Minister on Petroleum and Natural Resources Dr Asim chaired the meeting.
The Economic Coordination Committee (ECC) of the Cabinet had accorded approval of the upper cap at $100 per barrel on July 31. Sources said that Petroleum Ministry is now working to bring the cap (upper and lower) at $70 and 80 per barrel. Previously, there was no lower cap for OMCs and dealers' margins, which accounted for a reduction in the OMCs and dealers' margins. This new price fixing formula would ensure that their margins remain fixed.
The petroleum industry produces four to five products with different prices. The price of petrol is lower than other oil products in the market. Sources said that after placing lower and upper cap for OMCs and dealers' margins a balance in overall margins would be possible. Pakistan produces more gasoline from imported crude oil than its requirements and surplus naphtha (raw gasoline) is exported. Due to lower price of naphtha, petroleum industry faces losses.
Sources said that petroleum ministry is also working to develop petro-chemical industry to consume naphtha to save the industry from losses in exports.
Petroleum Ministry has started re-considering the margins of OMCs and dealers as they claim that it has been difficult to continue business, given the current margins on petroleum products. The margin of OMCs is 3.5 percent and dealers' margin is 4 percent. Due to percentage based margin mechanism, OMCs and dealers' margins have declined in line with the reduction of oil prices in domestic markets. The margin of OMCs is Rs 0.66 per litre petrol, HOBC Rs 0.73 per litre, kerosene oil Rs 1.09 per litre and Rs 0.98 per litre light diesel oil. These margins could be further reduced in line with the reduction of oil prices in the domestic market.
Sources said that during the meeting, the OMCs conveyed that it was becoming difficult for them to continue their operation. They said that the cost of doing business in Pakistan had increased manifold due to hike in electricity rates and escalation in other expenses. These margins were not appropriate to run the business, they reportedly lamented. The Advisor to Prime Minister on Natural Resources Dr Asim assured the OMCs representatives to re-consider their margins so that they could continue their operations.