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Struggling Oil Marketing Firms in Pakistan Request Increased Margins on Fuel Products

Pakistan’s Oil Marketing Companies Seek Rs12 per Litre Margin on Diesel and Petrol Amid Financial Challenges

A general view shows an oil refinery. — Reuters/File

KARACHI: According to a recent report, oil marketing companies (OMCs) in Pakistan are asking for a Rs12 per litre margin on high-speed diesel (HSD) and petrol due to the rising cost of operations that have caused financial difficulties.

The OMCs’ profit margin for HSD was Rs6.50 per litre and Rs6 per litre for petrol as of the most recent review of petroleum prices on April 30. Dealers charge a Rs7 per litre margin on top of the OMCs’ margin for these two fuel products.

In a letter addressed to the Secretary of the Ministry of Energy’s Petroleum Division, the oil industry requested an increase in the OMCs’ margin on HSD and petrol.

The letter recommended that the OMCs’ margin for HSD and petrol be set at Rs12/litre, which is less than 6% of the current ex-refinery price, on behalf of OMCs and refineries. The uninterrupted fuel supply and significant revenue that the oil industry generates through duties, taxes, and levies were highlighted by OCAC as important contributions the sector makes to the country.

But because business costs have increased since last year, the oil sector has faced numerous difficulties. Increased international fuel costs, exchange rates, higher interest rates resulting in inventory holding costs of about Rs 3 per litre, elevated demurrages due to credit letter confirmation charges, and a high turnover tax (0.5%) are a few factors that contribute to these difficulties.

The Economic Coordination Committee (ECC) established the current diesel and petrol margin of Rs6 per litre this year. According to OCAC, this margin is insufficient and needs to be urgently reviewed. According to the organization, the OMC sector requires ongoing infrastructure improvements as well as the digitization of the fuel supply chain.

Insufficient margins, a delay in recovering exchange losses, ongoing rupee fluctuations, rising financing costs, difficulties in confirming letters of credit, high turnover taxes, and other issues that have been repeatedly reported to the appropriate authorities are currently limiting the industry.

To keep the oil marketing sector viable, OCAC urged an immediate review and implementation of the suggested margin increase.

The ex-refinery prices, OMC and dealer margins, and inland freight equalization margins make up the pricing structure for diesel and gasoline. The cost also includes government taxation in the form of a petroleum levy.

Written by Aly Bukshi

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