The Oil Marketing Companies (OMCs) are urging the central bank to protect against currency risks and proposing a mechanism to reduce exchange losses in an effort to prevent a potential financial collapse within the sector.
The Oil Marketing Association of Pakistan (OMAP) sent a letter to the State Bank of Pakistan detailing the challenges the sector is facing amidst the current economic crisis, including a shortage of dollars and a lack of opening of LCs.
The letter said:
Due to the current economic situation, LC opening issues, non-adjustment of foreign exchange losses on actual basis and extremely high cost of doing business has incapacitated the OMC business, already grappling for existence. OMCs are already constricted by restricting the price of motor fuels.
In the letter, the OMCs expressed their resentment, claiming that the government did not adhere to its own authorized price adjustment formula. As a result of these improper changes, the estimated sales volumes for the second week of February would result in billions of rupees in losses, as confirmed during the product review meeting overseen by the Oil and Gas Regulatory Authority (OGRA).
The letter further added that the agriculture season is expected to commence in the second week of March 2023, and the industry will not be able to meet the heightened demand if the current constraining prices are sustained.
The OMAP underlined that the continued suppression of oil prices over the past year is not viable and will have an adverse impact on the oil industry, which is already facing significant challenges.
Additionally, it is worth mentioning that the adjusted margin of Rs. 6 per liter has not been fully incorporated into the price of HSD. As of now, Rs. 1 per liter of the revised OMCs’ margin on motor fuels, which was authorized by ECC in October 2022 after much anticipation, remains unacknowledged.
Another important factor that must be kept in mind is the exchange rate difference and inflation rate difference between October 31, 2022 & February 18, 2023. Taking into account this prime factor, the OMC margin should be above Rs. 9/liter.
