Inside Financial Markets

ECC likely to jack up OMCs margins , petroleum dealers

Petrol pump

ECC likely to jack up OMCs margins , petroleum dealers

ISLAMABAD: Amid continuing slide in oil prices, the government is expected to increase on Wednesday margins and commissions of marketing companies and petroleum dealers.

This would be one of the key items on the agenda of the meeting Economic Coordination Committee (ECC) of the Cabinet to be presided over by Finance Minister Ishaq Dar. The committee is also to consider changing pricing mechanism for compressed natural gas (CNG) and allow tax free supply of proposed imported liquefied natural gas (LNG) to CNG stations.

The ECC is also expected to allow import of 485,000 tonnes of urea involving Rs4 billion subsidy to meet fertiliser requirement in Rabi season.

A summary for the ECC seen by Dawn suggest the OMC’s margin on high speed diesel (HSD) currently stood at Rs1.89 per litre which has been proposed to be increased to Rs2.05 per litre, an increase of 19 paisa per litre.

Likewise, the commission for dealers currently at Rs2.30 per litre has been proposed to be jacked up to Rs2.70 per litre.

This change is proposed at a time the prices of all petroleum products are estimated to come down by Rs5-6 per litre with effect from November 1, 2014, for which the regulator would forward a formal summary to the government on Wednesday.

A study conducted by the Pakistan Institute of Development Economics (PIDE) had proposed up to 30pc increase in the margins of dealer and oil companies but opposed price deregulation saying the Pakistani market was not fit for competition and any such move could lead to increased monopoly by a few because of bigger size of older companies.

The petroleum ministry has, however, proposed full independence to oil marketing companies (OMCs) to fix prices of petroleum products, particularly petrol, at retail stage for a trial period of six months but some ministers and other stakeholders have expressed their reservations.

It has proposed that dealers will be bound to display both OMCs and dealer margins clearly at their retail outlets which will be strictly monitored by Ogra and respective OMC so that consumers could make a choice.

The ministries of Finance, Planning and Development, Federal Board of Revenue and Oil and Gas Regulatory Authority (Ogra) have opposed the proposal.

Ogra had pointed out that deregulation of margins will make ineffective the use of petroleum levy as a cushion to absorb any abrupt changes in the international prices.

The Planning Commission said the consumer price variation after deregulation of petrol would undermine the concept of inland freight equalisation margin that balances prices across the country. Even in future, the government should as a test case deregulate freight margin first, examine its results and then go for further deregulation.

It also supported Ogra’s view saying the independent consultant had also pointed out that deregulation would further worsen the problem. It said a detailed and well-defined oil downstream policy covering refining, logistics and marketing be formulated for clarity and in the light of best practices in the region.

The FBR said after deregulation of margins, collection of sales tax, particularly on dealers margin would become practically impossible as hardly any dealer was registered for sales tax.

The government had increased 25 paisa and 41 paisa per litre in margins on sale of petrol for oil companies and dealers respectively in February 2013. As a result, OMCs currently get Rs2.23 per litre margin on petrol and dealers get Rs2.78 per litre.


Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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