ISLAMABAD, March 13: The government has approved increase in oil marketing companies’ distribution margin from two per cent to 3.5 per cent and petroleum dealer’s commission from three per cent to four per cent, Dawn learnt on authority.
Though approved by the Economic Coordination Committee (ECC) of the cabinet a few days ago, the formal announcement to this effect would be made on Friday through Oil Companies’ Advisory Committee (OCAC) with fortnightly price review.
“We have decided to stagger it in two phases over a period of four months...up to June,” confirmed Petroleum Secretary Abdullah Yousaf. He told Dawn here on Wednesday that the increase would be implemented in two phases and the first phase would be coming with the forthcoming review i.e. March 15.
He said the OMC’s distribution margin would be increased to three per cent immediately and ultimately to 3.5 per cent in June 2002. The OMC’s margin is two per cent at present, he explained.
About petroleum dealers’ commission, the secretary said it would go up to 3.5 per cent immediately from existing three per cent and subsequently to four per cent in June 2002.
This means that OMCs would finally be entitled to charge from consumers 3.5 per cent of total sale price and petroleum dealers would charge 4 per cent of total sale price. On a cumulative basis, the dealers and companies share in sale price would increase from existing 5 per cent to 7.5 per cent.
According to petroleum ministry’s calculations, total impact of first (March 15) price revision inclusive of both - OMCs margin and dealers commission - would come to 45 paisa per litre increase in motor spirit (petrol) and 24 paisa per litre increase in high speed diesel (HSD).
Another 30 paisa per litre increase in motor spirit and 15 paisa per litre in diesel when second phase comes into effect in June this year. The secretary however, declined to confirm per litre increase, saying he did not remember exact increase off-hand.
The increase in dealers commission and OMC’s margin is being advocated on the basis of deregulation process to increase market competition for better service to the consumers.
Another argument being advanced by the government circles is to encourage multinational companies to further investment and competition but claimed that upper limit on both OMC’s margin (3.5 per cent) and dealers commission (4 per cent) has been fixed so that they have equal opportunity to compete.
This decision would ensure a hefty 40 per cent return on equity to the oil marketing companies. The OMCs margin currently stands at 70 paisa, 85 paisa, 25 paisa and 35 paisa per litre of petrol, HOBC, Kerosene oil and high-speed diesel, respectively.
Similarly, the dealers’ commission is Re1.10, 99 paisa and 47 paisa per litre of HOBC, petrol and high speed diesel, respectively.
Following a couple of few initial increases, the deregulation of petroleum prices had resulted into reduction in prices as a result of decline in international oil prices. This benefit of international market decline would however cease to be available with this increase.
Pakistani surplus petrol is sold at around Rs10 per litre abroad while the same is supplied to local consumers at Rs30 per litre. The increase in dealer’s commission and OMC’s margin is a pass through item in the sale price.
At present, the federal government is earning around Rs17.25 to Rs20.71 on every litre of petrol in the form of various taxes and charges against original (ex-refinery) price of Rs10.81 to Rs11.29.
In January this year, the federal government increased petroleum development levy by 75 paisa per litre on diesel and 25 paisa per unit increase on all other petroleum products including petrol.
