ISLAMABAD: The Oil Marketing Association of Pakistan approached the Special Investment Facilitation Council Secretariat (SIFC) to rescue the companies from unrecovered exchange losses, sale tax reduction impact and IFEM disruption.

In a letter, the association chairman has highlighted the challenges faced by emerging oil marketing companies, particularly regarding funds management due to structural following problems in the sector.

The industry has accumulated a total of Rs26 billion in unrecovered exchange losses due to the shortcomings in the current foreign exchange gain/ loss recovery mechanism.

Although the Ministry of Energy (Petroleum Division) and Oil and Gas Regulatory Authority (OGRA) acknowledge the existing flaws in the mechanism and recognise that companies have suffered losses as a result, they are displaying reluctance in addressing the matter promptly and expediting the reimbursement process.

These unrecovered amounts constitute a substantial portion of companies’ working capital, thereby, significantly impacting their operational efficiency.

The reduction of the sales tax of petroleum products (MS and HSD) to zero percent has led to the inability to recover the paid sales tax.

Presently, the industry is facing a significant impact with Rs65 billion worth of held funds, severely affecting their cashflows. The government authorities acknowledge this amount; however, the refunds are being delayed due to excessive bureaucratic processes.

Oil marketing companies are experiencing a disruption in their cashflows as the funds are being held up in the Inland Freight Equalization Margin (IFEM). The value of the funds received has seen a substantial decrease because of delays in the IFEM audit, which stretched over a period of eight years.

Given that the oil marketing sector heavily depends on imports and transactions are conducted in US dollar for imported products, this delay has had adverse consequences.

The letter says these challenges are affecting the entire industry and resulting in excessively high mark-up costs on these trapped funds.

Although the government authorities are aware of these issues, they are reluctant to rectify the underlying problems which are now putting the industry at risk of survival.

Copyright Business Recorder, 2024