Oil companies facing Rs35bn loss due to forex losses, LCs issue: OMAP

LAHORE: The Oil Marketing Association of Pakistan (OMAP) on Monday said that oil marketing companies (OMCs) are facing a loss of Rs 35 billion due to the foreign exchange losses and opening of Letter of Credit issue.

During his exclusive interview with Business Recorder, OMAP Chairman Tariq Wazir appealed to the government to address these issues immediately, otherwise the industry would be at the brink of closure.

Tariq Wazir said that the important challenge faced by the industry is rupee devaluation and resultant foreign exchange losses. He also said that this single factor has created a lot of pressure and burden on the working capital of OMCs.

The major reasons for this are taking PSO as a benchmark and price calculation formula of the Oil and Gas Regulatory Authority which does not equalise actual losses.

The adjustment and compensation for FX losses is a genuine right of importer of petroleum products, but due to unrealistic calculation many OMCs dealing in local refineries products take undue advantages for which they are not entitled.

The OMAP appeals that wrongly disbursed amounts should be recovered from such entities and should be disbursed to really deserving OMCs. Another paramount factor causing a squeezing financial capability is late adjustment of such losses.

“OMCs billions of rupees are pending for settlement and OMCs are compelled to this vicious circle of injecting money and then wait for settlement. This forces them to buy a product at an expensive rate and sell it at a lesser price. This phenomena can’t last long, it is a death warning for OMCs.”

He urged the State Bank to make such arrangements to reimburse the industry in case of foreign exchange losses on an actual basis. He further appealed to the Ogra that for new retail site development and storage Ogra should follow 2016 policy. For the establishment of new retail outlets, only motor gasoline storage should be accounted for. The Ogra being a regulator shall provide a level playing field to all OMCs.

When asked about demands, chairman OMAP appealed to the governor State Bank of Pakistan to announce some relief for the oil marketing companies in the wake of recent Pakistani rupee depreciation.

Tariq Wazir Ali dissociates himself from the news published in the section of the media recently published in which the Ogra was allegedly called regulator bias.

He highlighted the difficulties of doing business in Pakistan especially in the petroleum sector where the price, situation and challenges are changing frequently. He said that issues being faced by small and emerging OMCs are being highlighted again and again before government, authorities and other stakeholders but a number of issues still need focus and immediate resolution.

On question regarding challenges of petroleum sector due to Letter of Credit (LC) issues, Tariq Wazir Ali was of the view that the industry which was already facing problems now faces loss of billions of rupees as the rates of LCs will be settled later but the products already been sold.

Although there is compensation available in terms of foreign exchange losses allowed for LCs up to 60 days using PSO as a benchmark but that’s not enough in all circumstances. But the industry has suffered since the increase in price announced on January 29, 2023.

It is also observed that in the past 18 months, the banking sector has reduced financing to the oil industry irrespective of the Rupee depreciation which also added its part in the challenges for the industry. This has also caused shrinking the LC limit to 15 to 20 percent.

“There is a reason behind this suffering that PSO is settling its LCs for KPC HSD not on announced 60 days but its own 30 to 45 days. Actual payable is cleared by GoP later if PSO settles its obligation in less than 60 days. This should be passed on to the general public so that the industry might decrease its losses,” Tariq said.

When asked about the role of Ogra, Chairman OMAP Tariq Wazir Ali explained that no doubt the positive policies of Ogra helped the small OMCs to established their business and number of OMCs increased in Pakistan for better consumers service but still there are numbers of issues being faced by OMCs which needs to be addressed soon.

First and most important is considering the teething problems faced in setting up new OMCs. We expect dedicated staff for handling the issues of emerging/ new OMCs and we expect a level playing field regarding big OMCs. The OMAP member companies have spent billions of rupees on oil storage and allied infrastructure in the country.

He said emerging and small OMCs worked at a high cost of doing business for the betterment of the country and played a key role in strategic reserve enhancement in the country.

On question regarding marketing share and storage made by emerging OMCs, chairman OMAP noted that small and emerging OMCs have worked a lot on storage development, the storage capacity of emerging OMCs is 40 percent of the country’s total storage.

“We are still working on further increasing the oil storage capacity in the country and infrastructure, by the end of the current year, the storage share of emerging/ new OMCs will be 50 percent in the country, a big milestone of new OMCs.

Seeking chairman Ogra’s attention towards another important issue, Tariq Wazir explained that the maneuvering of Inland freight equalization (IFEM) there is a negative IFEM of Rs 10.70 per liter on HSD which is causing issues of working capital. This is affecting the Oil industry financially.

“We would also like to highlight the issue of the calculation of this amount on purchases rather than sales. This is like the PDC discussion where the industry had correctly convinced Ogra to apply it based on actual sales so over/under application of this amount could be avoided,” Tariq added.

Tariq Wazir Ali further said the OMAP is striving for the rights of emerging small Oil Marketing Companies (OMCs), who are playing a vital role in the petroleum industry of the country. The government’s vision and the Ogra’s policies have played a positive role and helped in establishing small OMCs. He said that there should be a level playing field for all the stakeholders.

Copyright Business Recorder, 2023