Islamabad:
The oil industry has called for a return to the old methodology of revising prices based on the current value of the dollar indexation.
In a letter to the Chairman of the Oil and Gas Regulatory Authority (Ogra), the Oil Companies Advisory Council (OCAC), a lobby group of oil industry players, called for the restoration of the old mechanism where the current dollar rate was taken into account. .
“We write about the exchange rate calculation methodology used to calculate fortnightly oil prices. Our request is to return to the previous methodology, thus returning to a simpler and clearer process,” OCAC stressed.
In the past, he added, the exchange rate prevailing at the time of pricing was used to calculate oil rates.
“However, effective August 1, 2022, Ogra has changed its methodology. Instead of using the latest available exchange rate, Ogra switched to a 15-day average exchange rate, despite reservations from the oil industry. This change created exchange rate exposure for the oil industry,” the lobby group said.
“We understand that using the most recent exchange rate available on the price change date reflects the exchange rate for the next fortnight and would be a better option compared to the current practice of using a 15-day average exchange rate.
“Since the Pakistan Rupee has stabilized at present, the impact of fixing the pricing mechanism will be negligible. We therefore recommend that the system revert to using the exchange rate in effect at the time/date of the pricing change.”
OCAC requested support for the implementation of the recommendation and expressed its willingness to present the proposal in person.
In the past, the then finance minister Ishaq Dar used different tactics to keep oil prices lower. His idea was that the calculation of oil price should be based on the average exchange rate and not the exchange rate at the time of the price revision. At that time also, OCAC raised the issue but the then Pakistan Democratic Movement (PDM) government rejected the request.
Now, the Prime Minister Shehbaz Sharif-led government is back in power, prompting OCAC to take up the issue with Ogra for its resolution.
Increase margins
Separately, the oil traders’ association approached Finance Minister Muhammad Aurangzeb, asking him to increase margins on oil sales.
“This is to bring to your attention that the last time the oil dealer’s margins increased was in September 2023. Since then, we have experienced a significant increase in various operating costs, including electricity charges, interest, labor costs, of franchise supplies of oil marketing companies and Kibor (Karachi Interbank Offered Rate),” the association president said in a letter.
“Despite our best efforts to meet all legislative requirements and operate in compliance, existing margins have made our profits unsustainable.”
Moreover, the rampant influx of smuggled petroleum products has dealt a serious blow to both the country’s economy and registered petroleum traders.
“While we diligently honor our commitments and investments, the prevalence of underpriced contraband has led to a drastic decline in petrol pump sales by up to 50%,” he said, adding that this detrimental trend has not only undermined the oil industry but also posed a serious threat to the overall economy.
Given the complexity
due to the situation, the union called for speedy resolution of traders’ grievances so that they can run the industry sustainably.
He warned the government that failure to address such pressing issues may leave them with no choice but to cease operations, which would have adverse effects on their businesses as well as the wider economy.
Published in The Express Tribune, March 26u2024.
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