The Economic Coordination Committee (ECC) of the Cabinet headed by Finance Minister, Asad Umar, is likely to review the "need" of Inland Freight Equalization Margin (IFEM) after going through detailed report of Petroleum Division, sources close to Petroleum Minister told Business Recorder.
The decision was taken by the committee on a summary of Petroleum Division regarding new criteria for issuance of petroleum products marketing licence.
Giving the background, sources said that the ECC in decision of October 25, 2003 approved criteria for establishment of new Oil Marketing Companies (OMCs) in the country.
The basic purpose behind this initiative was to attract investment, create healthy competition and achieve efficiencies in the oil marketing and distribution sector.
Under the criteria, 53 new companies have been granted marketing licences to date while total number of companies with marketing licences presently stand at 59. Such a large number of OMCs is sufficient for ensuring fair competition and achieving efficiencies in the oil marketing sector. However, effective monitoring of such a large number of OMCs by OGRA is likely to be problematic due to capacity constraints of the Authority.
The sources further stated that a period of about 15 years has elapsed since inception of the approved criteria, while exchange rate in terms of dollar in 2002-03 is now 139 per dollar. Similarly, average storage construction cost per ton has increased from about 50,000 in 2003 to more than Rs 100,000 including land cost which warrants a corresponding increase in the investment requirements for the new marketing companies to meet the criteria.
The sources said, Petroleum Division believes that it will be appropriate if the condition of investment in infrastructure equivalent to Rs 500 million is increased/ revised.
According to some reports the investors will be required to submit an infrastructure investment plan besides the retail development plan with minimum upfront equity of Rs3 billion at the time of application.
Accordingly, the criteria for establishment of new oil marketing companies need to be revised to cover some of its weaknesses as well as to introduce some new aspects.
Petroleum Division was of the view that existing criteria are silent about existing licences, suggesting that some of the provisions for existing OMCs may also be considered for incorporation in the new criteria in order to ensure across the board treatment with regard to investment and infrastructure development.
The Petroleum Division, in its summary, suggested that a new company must build storage tanks with capacity of 20,000 tons each for high-speed diesel and petrol or capacity equal to 20 days of average sales, whichever is higher, prior to beginning petroleum product sales in the country. the new company, depending on imports, will create adequate storage and terminal facilities at the port.
State-run Pakistan State Oil (PSO) and Shell Pakistan have storages but oil tanks are not enough to stave off an oil crisis.
After detailed discussion, ECC approved new criteria for issuance of petroleum products marketing licence and directed Petroleum Division to: (i) revisit the rationale for issuance of petroleum products marketing licence to OMCs, keeping in view the international standards and parameters for the proposal and ;(ii) submit a report on the need/ justification for Inland Freight Equalization Margin (IFEM) to the ECC for consideration.