ISLAMABAD, Dec 10: The Planning Commission and Financial Advisors' Organization (FAO) have asked the government to reduce distribution margin of the oil marketing companies and dealers' commission on petroleum products to a reasonable level.

Informed sources told Dawn on Friday this could be a solution to partially offset the impact of higher international oil prices without burdening the consumers or affecting the revenue targets.

These sources said the Planning Commission was of the opinion that the margins and commissions were increased in 2002 from about three per cent to 7.5 per cent with the objective that the companies would invest in setting up of POL storages out of their profit.

The profits of the oil marketing companies (OMCs) have more than doubled but the companies did not spend anything in the storage sector, defeating the very objective of President Musharraf.

The Ministry of Petroleum and Natural Resources has, however, opposed the move saying the existing rates were still on lower side to that of the margins in other countries of the region.

The FAO of the petroleum ministry has on the other hand supported the proposal of the Planning Commission. It said President Musharraf's agenda envisaged rationalization of margins so that they could invest in storage and infrastructure for oil.

"Contrary to the agenda and justification to the proposal of the summary (that earlier sought to increase the margins in 2002), the investments in the storage and infrastructure of the oil has been negligible during the subsequent months by the companies", the FAO said.

It also said that OMCs profit and dividend paid to their companies increased by 130-160 per cent in case of state-run Pakistan State Oil and by 180-250 per cent in case of Shell Pakistan in the last two years respectively and most of the profit of the companies was pocketed by the shareholders.

In case of PSO, the net profit during the year 2002-03 amounted to more than Rs4 billion of which Rs2.5 billion was earned purely on the basis of increase in margin, otherwise its profit should have been only Rs1.6 billion.

The FAO has also pointed out that the upper limit of distribution margin was introduced to ensure a ceiling, however, the original summary envisaged that competition will keep the price lower than this ceiling. "It has not happened and ceiling became the base of source of whole profit on the customer expense instead of commercial efficiency", it said.

It has also highlighted the fact that the consumption of POL products in the country has declined from 18.24 million tons to 16.84 million tons whereas the profits of both Shell and PSO have about doubled from Rs3.53 billion in 1999 to Rs7.9 billion in 2002-03.

The petroleum ministry is of the opinion that in the de-regulated and competitive environment, there cannot be any fixed rate for margins, however, to watch the consumers interest, the government has set upper limit to contain OMCs and dealers commission within that limit and hence there is no need to intervene at this stage.