ISLAMABAD, Nov 6: The Oil Companies Advisory Committee (OCAC) has urged the prime minister to intervene and order payment of circular debt of Rs156 billion.

In a letter, the OCAC informed the PM on Oct 30 that if the circular debt was not cleared immediately, power generation, transportation and industrial sectors would suffer, aggravating electricity shortfall and causing shortage of petroleum products across the country.

The body’s chief, Kalim A. Siddiqui, who is also managing director of the Pakistan State Oil, in his letter also expressed reservations over the existing import parity pricing formula for oil.

According to him, all oil refineries in Pakistan are currently operating well below capacity.

Apart from other oil marketing companies, the PSO’s receivables alone from the IPPs, Wapda, the KESC and PIA amounted to Rs60 billion, the letter said.

On the other hand, the OMCs have to pay Rs65 billion to refineries.

The government has to pay an additional Rs27 billion to oil companies on account of price differential claims — the money provided to companies by the government in the form of subsidy for selling products at a discount.

The letter states that the sharp depreciation of the rupee had complicated matters.

The OMCs and refineries that import finished products and crude are facing problems in honouring their letters of credit as the advising/negotiating banks “are increasingly getting hesitant to confirm LCs to the suppliers due to unstable and tight credit conditions in international banking and Pakistan’s credit ranking, which has been downgraded by Moody’s from B2 to B3”.

“This has caused reduced crude availability, reduced refinery throughout and reduced local product availability,” the letter said.

Similarly, the import of high speed diesel (HSD), furnace oil and jet fuel is facing hurdles due to liquidity issues.

“We are, therefore, heading for a situation where product availability would be adversely impacted, as also all industry, transport sector, and electricity generation,” the letter said.

The Oil Companies Advisory Board is also not happy with the existing refinery pricing formula. It states that the OMCs had offered the government till crude oil prices came below $100 a barrel, cap margins at $120 per barrel value, instead of previous 3.5 per cent margins.

Refineries, the letter added, had also agreed to a review of their import parity pricing formula — the customs duty on HSD and the petroleum pricing mechanism. However, the OMC margins were capped at an earlier value of $100 per barrel.