ISLAMABAD, Oct 24: The federal government has agreed with the oil companies to restrict new companies from starting oil marketing business in the country.

The new policy (criteria) for oil marketing companies (OMCs) prepared by the Oil Companies Advisory Committee (OCAC) will be approved by the Economic Coordination Committee (ECC) of the cabinet here on Saturday.

Sources at the petroleum ministry told Dawn on Friday that ministries of finance and petroleum had already given consent to the new policy (criteria), although the commerce ministry and the Securities and Exchange Commission of Pakistan (SECP) had raised certain objections.

The summary to the ECC submitted by the petroleum ministry said the oil marketing licence should be given to only those companies that have previous experience in oil marketing at the national or international level.

Technical collaboration/franchise with the national or international oil marketing companies shall be considered as an additional advantage.

The sources said the policy practically blocked new local and international companies from starting the business to ensure a monopoly to the existing marketing companies. The OCAC is represented by six existing OMCs and four refineries.

“An effort has been made to guarantee monopoly of the existing multinationals to ensure them protection which they have been enjoying in a regulated regime,” a senior petroleum ministry official said. He said a local company was recently denied a licence because it had proposed to run 16 outlets itself and pass on four per cent dealer’s commission to the consumers, although it fulfilled criteria under the petroleum policy.

Officials at the finance ministry said criteria prepared by the OCAC had been given full consent because the government had little role to play in the oil business after deregulation of the sector three years ago.

Under the marketing plan, the new company would have to submit supply arrangement details and would be required to first uplift products from the local refineries and import the deficit product with the consent of the OCAC.

The company would be required to submit retail outlet plan for the first three years, which should commensurate with the marketing plan and also submit its transportation plan. The new applicant would also specify cities, locations and number of outlets to be established along with the application.

The new applicant would be required to provide coverage to rural, urban and far-flung areas and comply with the safety and environmental standards. The company would also be required to establish its own depots and ensure adequate stocks.

The licence would be provisional for initial three years and would have to be executed strictly in accordance with the marketing plan. The director general of oil would have the powers not to renew the licence in case of failure by the company to meet any of the clause and fix penalty in such case.

The storage at locations and capacity corresponding to their business strategy, estimated volume and associated economics would also need to be submitted by the new applicant.

Under the investment plan, the company would have to give details of infrastructure development of depots, installation of machinery and outlets. If the new company is not affiliated with any existing refinery, a minimum of 20 days and in case of affiliation 10 days storage of their proposed sale shall be provided as infrastructure prior to beginning to sales in the country.

The company would be required for an equity investment of Rs500 while total debt/ equity ratio would not be less than 60:40 per cent. The licence would be non-transferable.

The new group should be of repute having adequate financing resources to manage the new company in the initial period. It should also have the capability to raise funding from commercial banks and financial institutions.

A letter of support (LoS) from the banks or financial institutions must be provided with the application. The applicant would also file an affidavit that none among the executives of the company ever had any criminal case, loan default or tax evasion case.