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ISLAMABAD: With the rising international oil prices and continuing domestic price freeze, the Petroleum Division has notified substantially higher per litre price differential claims (PDCs) for oil marketing companies (OMCs) for the first fortnight of April.
Simultaneously, the Oil and Gas Regulatory Authority (Ogra) has announced a schedule of more than Rs13 billion recoveries from oil refineries on account of regulatory duty/customs duty.
In a notification, Ogra informed all stakeholders, including the Prime Minister Office, ministries of energy and finance and OMCs that in line with Prime Minister Imran Khan’s February 28 decision to maintain petroleum prices, the government would bear the PDCs on retail prices of petrol, high-speed diesel, kerosene and light diesel till April 15.
Under the notification, the government will absorb in the federal budget an amount of Rs24.07 per litre on petrol, Rs41.43 on high-speed diesel, Rs32.82 on kerosene and Rs30.74 on light diesel. Ogra has been directed to calculate the amount of PDC accordingly for disbursement to respective OMCs and refineries under the procedure approved by the Economic Coordination Committee (ECC) of the cabinet.
Rising international oil prices, domestic price freeze cited as main reasons for govt move
Under the said mechanism, Ogra has already formally approved the payment of Rs733 million to the OMCs on account of PDC for the period from November 1 to 4, 2021, at a rate of Rs10.79 per litre on petrol, Rs7.70 on HSD, Rs5.87 on kerosene, Rs5.71 on light diesel and Rs2.28 per litre on high-speed diesel for March 1-15, 2022.
As such, the amounts payable for the first four days of November have been worked out at Rs529.41m and Rs204m for the first 15 days of March. These payments have been cleared by Pakistan State Oil to the relevant companies.
Under the approved procedure, the Finance Division will formally advise the auditor general for Pakistan to conduct an audit of the provisional claims and disbursements at the end of the whole scheme on the basis of records submitted to Ogra, including sales tax documents. The nine companies, which together incurred Rs529m higher costs than prices approved by the government in the first four days of November and now being compensated, include Shell, National Refinery, Attock Petroleum, Hascol, Cnergyico, Al-Noor, Oil Industries, Kepler and Total-Parco Pakistan.
The 15 companies whose Rs204m PDCs for the first 15 days of March have been approved by Ogra are: Shell, Hascol, Cnergyico, Zoom Petroleum, Oilco, OTO, Zoom Marketing, The Fuelers, Al-Noor, My Petroleum, Jinn Petroleum, Laguardia Petroleum, Flow Petroleum, Tottal-Parco and Allied Petroleum.
Simultaneously, Ogra has brought it to the notice of refineries that the recovery schedule of the refinery regulatory duty for the period of FY2020-21 had been completed in February 2022 through adjustment in the inland freight equalisation margin (IFEM) in product pricing. Subsequently, to proceed further with recovery of regulatory duty for next period — July-December 2021 — the complete month-wise working of all refineries had also been completed.
Faced with political challenges, Prime Minister Khan had announced a Rs10 per litre cut in petroleum prices and a price cap for four months amid the rising global trend. This led to the creation of price differential claims. Unfortunately though, all these workings were based on $85-95 per barrel and exchange rate at Rs178. The situation changed as prices went beyond $120 and the exchange rate over Rs184.
To its credit, the government has moved swiftly and has already transferred about Rs20bn into a special account of PSO to make payments to OMCs against their PDCs. The OMCs are now filing their PDCs and would pass through the swift and time-bound approval and payment mechanism.
The government had initially approved Rs20bn along with a procedure for payments to OMCs and refineries on account of PDCs to avoid a shortage of petroleum products in the country. However, PSO pointed out that the procedure prepared by the regulator in consultation with ministries of finance and energy and approved by the Economic Coordination Committee was faulty and would result in product shortages. It pointed out that PDC was arising on account of the sale of petroleum products while the reimbursement mechanism was based on the procurement of petroleum products.
“OMCs will be at a loss if PDC reimbursement is based on procurement rather than sales and private OMCs may shy away from the market and stop selling products in the market,” PSO pointed out.
It highlighted that consumers would only benefit from the PDC or discount on petroleum items when the product is sold by OMCs and “mere procurement will not be sufficient”.
Published in Dawn, April 4th, 2022
