The Oil Companies Advisory Council (OCAC) has demanded either to withdraw the oil prices cut announced recently by Prime Minister Imran Khan or the payment of outstanding dues to eliminate the Price Deferential Claims (PDC) that is adding to the financial difficulties of the oil industry.
OCAC gets PDC, a form of government subsidy claimed by oil companies in return for lowering the prices for consumers, which is replenished by the State.
In the backdrop of higher international oil prices and the subsidy announced by the Prime Minister, the Oil Companies Advisory Council Secretary-General Syed Nazir Abbas Zaidi wrote a letter to the Secretary Ministry of Energy and expressed his grievances about increasing the Price Deferential Claim which has been mounting day by day.
He wrote that the Price Differential Claim (PDC) is a matter of concern for the oil industry as it has been imposed despite the critical condition of the industry. The council had requested the Ministry’s support in avoiding the further imposition of PDC as it will have an untenable impact on the industry’s cash flows which would lead to catastrophic disruption in the petroleum supply chain of the country.
He said that the current PDC on high-speed diesel (HSD) will create receivables of approximately Rs. 1 billion during the first fortnight of March 2022. This will add to the previous receivables pertaining to 2004-2008, thereby further aggravating the financial challenges being faced by the industry.
He further said that the industry is already facing severe financing issues caused by rising international prices, devaluation of the Pakistani rupee, high import premiums and circular debt of Rs 1.3 trillion. To ensure uninterrupted supplies and to manage working capital requirements, the industry has already requested the State Bank of Pakistan (SBP) to support in enhancement of their credit/ financing limits. A meeting was held on February 28, 2022, in this regard, and sensing the gravity of the situation the Governor SBP has constituted a committee of leading banks to urgently provide their proposal in this matter.
“Additionally, the decision to maintain prices at the current level till July 2022, will lead to a further buildup of PDC for HSD as the international prices are on the rise due to the current geopolitical situation. If the local consumer prices are not aligned with the international market and the PDC regime is continued, the industry will not be able to sustain and this will lead to a severe supply chain disruption during the upcoming harvesting season resulting in a crisis of petroleum products shortage similar to one faced in June 2020. Further, it will have a serious adverse impact on the business continuity of several companies in the industry”, Zaidi wrote.
To avoid imminent shortage of petroleum products, Zaidi requested that the PDC element should be removed by revising petroleum product prices immediately or formulation of a subsidy mechanism.
