ISLAMABAD, Aug 26: The government has slashed the profit margins of oil marketing companies (OMC) and dealers in petrol prices by between 22 and 33 per cent.
The Supreme Court of Pakistan is likely to take up the hearing of the oil pricing scam soon.
The reduction in profits would not be passed on to consumers since the government had raised the rate of petroleum development levy (PDL) to improve its own revenue stream, sources in the petroleum ministry told Dawn.
Interestingly, the petroleum price was notified on August 25, a week ahead of the scheduled date of August 31, for immediate implementation by the Oil and Gas Regulatory Authority (Ogra). Under rules, petroleum prices are revised on a fortnightly basis. Informed sources said the revised oil pricing formula was approved by the prime minister on a summary moved by federal secretary Ahmad Waqar, who had been facing a tough time defending the faulty oil pricing formula before the apex court, the national accountability bureau and various parliamentary committees.
The reduction in profit margins of oil marketing companies and dealers’ commission has been made through a change in pricing mechanism. A senior government official requesting anonymity explained that companies and dealers used to be given 3.5 per cent profit on petroleum products after including PDL and freight margin into the pricing formula, which meant that they were erroneously or illegally getting profit on government revenue.
He said the dealer commission and OMC margin would now be calculated on the ex-refinery prices plus a freight equalisation margin or transportation cost, although their profit would continue to be deemed at 3.5 per cent and legally they could not challenge it. But that would mean that the government has been allowing the companies and dealers to charge abnormally higher rates from consumers.
The dealer commission and OMC’s margin on motor gasoline has been reduced with immediate effect by 22.4 per cent. Dealer commission has reduced from Rs1.74 per litre to Rs1.35 per litre, while OMC margin has come down from Rs1.52 to Rs1.18 per litre. On the other hand, PDL on motor gasoline has been increased by 7.5 per cent to Rs10.52 per litre from Rs9.79. The PDL on motor spirit for sale to the armed forces, railways, government agencies and electricity utilities has been increased by about three per cent to Rs11.87 per litre instead of Rs11.53.
Similarly, the PDL on high octane blending component (HOBC) has been jacked up by 7.5 per cent for common consumers and three per cent for armed forces, railways, public utilities and public sector agencies etc. The dealer commission and OMC margin on HOBC has been cut by 32.6 per cent. The OMC margin on HOBC has been reduced from Rs1.84 to Rs1.24 per litre while dealer commission has been brought down to Rs1.42 from Rs2.10 per litre.
The oil marketing companies are, however, stepping up efforts to undo the decision, claiming it as unwarranted and unjustified. An oil executive said the oil companies advisory committee would now be justified to claim interest on price differential claims, the government owes in excess of Rs15 billion to the oil industry. He said the OMCs would stop their expansion plans.
He said the banking industry was earning massive profits by offering little to the consumers but the government was targeting only the oil industry that in their opinion would shy away investment in the energy sector. Many in the government, however, believed that the higher returns were allowed to the industry on promise of enhancing storage facilities which was not adhered to by the OMCs.
The gravity of the situation emerged as a scam when the former attorney-general of Pakistan (AGP) expressed his inability to defend the government in the Supreme Court of Pakistan due to serious illegalities of the whole mechanism. So much was the free fall during the last seven years that the oil marketing companies and their dealers kept on charging their margins even on government taxes, including sales tax and PDL.
