Economic Co-ordination Committee (ECC) of the Cabinet has reportedly rejected increase in margins of Oil Marketing Companies (OMCs) and dealers suggested by Pakistan Institute of Development Economics (PIDE) and assigned the task to a corruption-tainted Oil and Gas Regulatory Authority (Ogra), well informed sources told Business Recorder.
Giving the background, the sources said, the ECC in its meeting held on February 26, 2013 approved the following relief/increase in OMCs' and dealers' margins on the sale of petroleum products which was implemented from 1st April 2013, ie, OMCs' and dealers' margin on petrol was increased by Rs 0.25 and Rs 0.41 per litre whereas margin on HSD was hiked by Rs 0.10 per litre.
The committee headed by Finance Minister had also directed to conduct a study for establishing a criteria/mechanism for the revision of margins in future. The study was awarded to PIDE after meeting necessary codal formalities. While presenting the report, the ECC was informed on April 25, 2014 that PIDE in its analysis has taken into account various cost factors of OMCs and dealers separately. Based on their analysis/ findings on expenditure, existing margins and keeping in view the importance of the oil sector in country's economy, PIDE recommended the following increase in existing margins for the sustainability of the OMCs' and dealers' businesses: by Rs 0.63 litre on petrol to Rs 2.86 per litre from Rs 2.23 per litre for OMCs; Rs 0.64 per litre to Rs 3.42 from Rs 2.78 per litre for dealers. On HSD, PIDE has recommended a Rs 0.82 per litre increase from Rs 1.86 to Rs 2.68 per litre for OMCs and Rs 0.81 per litre to Rs 2.30 from Rs 3.11 per litre for dealers.
With increase in margins, total impact on consumers will be Rs 1.49 per litre for petrol and Rs 1.91 per litre for HSD, including 17 percent GST. It was stated that the PIDE report was examined/ evaluated and subsequently shared with dealers and OMCs separately in meetings held on December 26, 2013 and January 13, 2014 respectively under the chairmanship of the Minister for Petroleum and Natural Resources. MPNR argued that PIDE's recommendations on increase in margins are on the higher side as there was a wide variation in the costs amongst the companies.
It was pointed out that PIDE has proposed an annual review of margins and suggested formulae separately for OMCs and dealers to work out the increase in margins. The formulae are based on a 30% mark-up on assets/investment and CPI published by State Bank of Pakistan (SBP). After going through the proposed mechanism, MP&NR maintained that CPI announced in the annual federal budget may be considered as the basis for any such increase in future if so required subject to the condition that the margin should not exceed 3% of the sum of ex-refinery and Inland Freight Margin (IFM) of the respective petroleum product.
In view of the foregoing position, the following was recommended for consideration/ approval of the ECC: (i) OMCs' and dealers' margin on MS (petrol) may be deregulated for a trial period of up to six months. Dealers would be bound to display both OMCs' and dealers' margins clearly at their retail outlets which would be strictly monitored by OGRA and the respective OMC. FBR would provide a detailed mechanism, particularly on tax collection etc for OMCs and dealers; (ii) based on PIDE report and discussions held with PPDA, an increase of Rs 0.40/liter in their margin on HSD was agreed with PPDA as against their demand for Rs 1.20/litre and PIDE's recommended increase of Rs 0.81/litre; (iii) while circulating the summary to respective Ministries/ Divisions, an increase in OMCs' margin on HSD was proposed as Rs 0.16/litre. However the OMCs' representatives did not agree on the said increase and demanded an increase based on CPI from the date of last revision, ie, since November 2011 onward plus a suitable provision for return on investment. Accordingly, an increase in OMCs' margin on HSD, after adjustment of interim relief, has been revised to Rs 0.19/litre by applying CPI (16.40%) for the period November 2011 to February 2014 announced by Pakistan Bureau of Statistics (PBS); and (iv) OMCs' and dealers' margins on HSD were proposed to be fixed ie OMC - Rs 2.02 from Rs 1.86 per litre - increase Rs 0.16 per litre and dealers - Rs 2.70 from Rs 2.30 per litre, showing an increase of Rs 0. 40 per litre.
During discussion it was suggested to de-regulate the price of petrol for a trial period of six months and let the OMC and dealers decide their margins. Under the new scenario the dealers would fix the price of petrol under a competitive regime exposing the petrol consumers to different prices in the country. PIDE had complained to the federal government that OMCs are not providing required data critical to analyse their margins.
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