May 17, 2006	Wednesday	Rabi-us-Sani 18, 1427

ISLAMABAD, May 16: Amid investigations into the oil pricing by National Accountability Bureau (NAB), the oil marketing companies and their dealers have asked the government to increase their margin up to seven per cent and reduce general sales tax rates by half to 7.5 per cent.

Informed sources told Dawn on Tuesday that the OMCs have also warned of declaring a default in the next few days unless the government immediately paid over Rs10 billion it owed to the industry on account of price differential claim (PDC).

The sources said the oil industry has taken up the issue of non-payment of PDC with the secretary general finance Naved Ahson and informed him about the “emerging crisis-like situation”. They said the government owed them about Rs16 billion since October last year and only Rs6 billion had so far been paid to them.

As a result, the OMCs were not paying their dues to the oil refineries and the refineries were facing it difficult to purchase crude for their full capacity utilisation. Neither the OMCs nor the refineries were ready to borrow from the market, a senior official of an OMC said.

“OMCs have started defaulting on the payments to the refineries which in turn will curtail the refinery production which would lead to possible disruption in supply chain of the country at a time when OMCs are required to build up inventory for commercial and strategic purposes”, said OMC’s communication to the government.

The OMCs have confirmed to the government that their old pricing formula was faulty and the recent change in calculation methodology was logical but this has adversely affected their profitability.

They claim that the dealers and OMC’s margin was reduced by 20 per cent on March 16, 2006 by excluding general sales tax from the end prices on which these margins used to be calculated.

The industry has now proposed that OMCs margin should now be subject to new formula based on speed breakers at $50 per barrel and $100 per barrel given the rising trend in the international market.

Under this formula, they said the OMCs commission should be fixed at four per cent of consumer-end price, five per cent of price without sales tax or 6.5pc of ex-refinery price if the international price stood below $50 per barrel.

In case of over $50-100 per barrel international price, the OMCs commission should be reduced to 3.5 per cent of consumer price, 4.5 per cent of price without sales tax and six per cent of the ex-refinery price.

In case, the international price crossed $100 per barrel, the OMC’s margin should be fixed at three per cent of consumer price, four per cent of price without sales tax and 5.5pc of ex-refinery price.

Similarly, the dealers’ commission should also be fixed at seven per cent, 5.5pc and 4.5pc of ex-refinery price, price without sales tax and consumer price respectively in case of international price stay below $50 per barrel.

The dealer commission, they said, should reduce to 6.5pc and four per cent of consumer price and ex-refinery price if price range between $50-100 per barrel. Further, this commission should further reduce to six per cent and 3.5pc of consumer price and ex-refinery prices in case of international prices going beyond $100 per barrel.