On the backdrop of a meeting with the Oil and Gas Regulatory Authority (OGRA) last week, oil marketing companies have proposed a payment mechanism of outstanding price differential claims from the government after OGRA approval within a month.
Oil Companies Advisory Council (OCAC) has threatened a supply crisis could emerge if a quick payment mechanism is not adopted, sources told.
The rise in international oil prices has squeezed the cash flow and created a liquidity issue for the oil marketing companies, which forced them to demand the outstanding payment clearance from the government a week ago.
In this regard, Secretary-General OCAC, Syed Nazir A Zaidi, has forwarded proposals to the Secretary of Energy.
The proposals were presented by the OCAC at a time when the government is preparing a summary for the ECC for devising a formula of payments of Property Debt Collection (PDC) arrears.
He said that it was mutually decided that a mechanism for fortnightly reimbursement of the Price Differential Claim (PTC) will be urgently formulated through a government-funded facility or consortium banking arrangement in consultation with the Ministry of Finance.
In the light of the discussion, the Council proposes the mechanism of “funded subsidy” as mentioned by the Minister of Energy. The Council proposes the following mechanism based on government-sponsored funded subsidy in the form of a consortium of Banks, to facilitate business normalcy and support the Ministry of Energy in expediting the process.
According to the proposals, the oil companies will furnish data to the OGRA, through email, courier the fortnightly. The PDC of each fortnight will be authenticated by the external auditor of the company and duly signed by the CEO of the respective company, The documents will be submitted to the regulator along with a certificate of assurance within four working days.
It is also proposed that the OGRA will review the claims of the oil company and forward them to the consortium of banks within the next four working days. The consortium of banks will reimburse 95 percent of claims to the oil company within the next two days.
The OGRA and Consortium of banks will also pay the remaining 5 percent after necessary internal verification by the OGRA, proposed by the OCAC.
The oil marketing companies are entitled to Rs. 3.65 per liter profit margin while PDC on high-speed diesel (HSD) works out at about Rs. 2.28 per liter
The OCAC requested the Ministry of Energy that the mechanism enables swift implementation of the process for remittance of the PDC claims. The management of cash flows is critically challenging for the downstream sector owing to insufficient margins, PKR-USD parity, constrained financing facilities, circular debt, outstanding PDCs since 2004, and other external factors such as the geopolitical situation, high premiums, etc.
The sooner the process is approved and implemented, the quicker will be redressal of already constricted working capital constraints faced by the oil industry.
Some experts believe that the net impact of the PDC was estimated to cost about Rs. 9-10 billion for the fortnight beginning 1 November 2021. The big oil marketing companies including Pakistan State Oil (PSO) and Shell, would be able to absorb such a hit to their cash flows. However, for small companies, it would be a devastating blow.
