ISLAMABAD: The oil industry on Wednesday complained to the new coalition government that despite public announcements, there was no formal approval on ground for payment of price differential claims (PDCs) to oil companies for selling cheaper than the cost of petroleum products beyond March 31.

“PDC of Rs34.19 billion is expected for the period April 1-15, 2022. However, till date approval for the same from Competent Authority has not been initiated,” the Oil Companies Advisory Council (OCAC) said an urgent letter to the Oil & Gas Regulatory Authority (Ogra) and Director General Oil of the Petroleum Division.

In its letter, the OCAC — an umbrella organisation more than three dozen oil marketing companies (OMCs) and refineries — raised a series of challenges hampering the smooth operations of oil industry and could lead to supply disruptions.

While appreciating the support from Ogra and Petroleum Division for reimbursement of PDC and revision in methodology for calculation of premium on high speed diesel (HSD), the OCAC highlighted at least three major issues causing problems to the industry.

Interestingly, the Ogra, through a notification, had informed all stakeholders, including the Prime Minister’s Office, ministries of energy and finance and OMCs on March 31 that in line with former prime minister Imran Khan’s February 28 decision to maintain petroleum prices, the government would bear the PDCs on retail prices of petrol, HSD, kerosene and light diesel oil (LDO) till April 15.

Under the notification, the government has to absorb in the federal budget an amount of Rs24.07 per litre on petrol, Rs41.43 on HSD, Rs32.82 on kerosene and Rs30.74 on LDO. Ogra had 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.

In a news conference on Tuesday, finance adviser in waiting Miftah Ismail had alleged that the PTI government has announced a price freeze but former finance minister Shaukat Tarin did not approve budget for this freeze at the forum of ECC because he knew it was an explosive landmine

The OCAC said that besides the absence of approval for allocation of funds for April 1-15 quarter, the non-payment of previous fortnight dues also remains outstanding. It said that Rs11.73bn PDC allocated for March 16-31, 2022 have been approved but have not yet been transferred to the assignment account managed by Pakistan State Oil (PSO) for onward payment to individual OMCs. It reported that majority of the industry’s claims for March 16-31, 2022 had already been submitted to Ogra but payments have not yet been made. “Urgent disbursement of the allocated amount (Rs11.73bn) is imperative to ensure reimbursements to the industry,” the letter added.

Also, the OCAC demanded compensation for transportation cost for shifting petroleum products from one port to another i.e. from Fauji Oil Terminal to Karachi Port due to congestion problems.

Currently 35pc of petrol volume being moved from South (Karachi) to upcountry has been allocated to White Oil Pipeline (WOP) for the purpose of Inland Freight Equalisation Margin (IFEM) computation. However, due to current port constraints, OMCs are forced to shift petrol vessels from FOTCO to KPT. In the absence of any mechanism for shifting duty paid petrol from KPT to Pak-Arab Pipeline Company (PAPCO), petrol input in WOP is expected to decline.

The OCAC said the oil industry had raised this matter in the IFEM meeting last earlier this week and demanded that the 35pc restriction should be lifted and pipeline allocation should be limited to actual throughput during April to June 2022. However, the same was not allowed and pipeline allocation of 25pc was incorporated in IFEM to be effective from April 16, 2022.

The OCAC demanded review of this allocation by allowing OMC-wise actual pipeline movement for computation of petrol IFEM during April to June 2022 to ensure that no additional financial burden is imposed on OMCs.

Moreover, a negative adjustment of 59 paisa per liter was passed by Ogra during second fortnight of November 2021 while its recovery was allowed during January but further adjustment of 28 paisa per liter (based on current month IFEM projection) was outstanding. It demanded that these outstanding amounts should also be incorporated in IFEM costs with effect from April 16.

It said that all these issues were a matter of grave concern for the industry and if not addressed urgently, will further block the industry’s cash flow and diminish the industry’s capacity to meet the country’s demand and put undesirable burden on the supply chain.

Published in Dawn, April 14th, 2022

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