KARACHI, March 9: The ministry of petroleum and natural resources has informed the Oil Companies Advisory Committee (OCAC) about the new formula for working out dealers commission and oil marketing companies (OMCs) margin.

According to the new formula, the OMCs margin and dealers commission will be calculated on ex-depot sale price before levying of General Sales Tax (GST).” The formula, conveyed to the OCAC on March 7, will be effective from March 16, 2006.

Currently, the OMCs margin at the rate of 3.5 per cent and dealers’ commission at the rate of four per cent was calculated on ex-depot sale price inclusive of the GST.

The marketing companies’ profitability, during the last two and a half years, has increased substantially due to high prices, inventory gains, etc., the petroleum ministry said adding that the estimated impact, on account of this decision, is around Rsfive billion per annum.

However, before the approval of the new formula, Chairman Central Board of Revenue (CBR) Abdullah Yousuf had informed the petroleum ministry about the annual revenue loss of about Rs550 million in this regard.

The responsibility of announcing the fortnightly oil prices has been shifted to Oil and Gas Regulatory Authority (Ogra). The OCAC is expected to carry out its last two assignments of fortnightly price revision on March 15 and March 31 and then OGRA will take over the responsibility from April.

The OCAC, a strong cartel of OMCs, appears to have received a shock from this decision and its chairman Zafar Haleem has sent a note to Prime Minister Shaukat Aziz on March 8, the very next day of receiving the letter from the petroleum ministry.

While terming the change in the formula a unilateral move - the OCAC chairman said that the decision will have a grave impact on the privatization of Pakistan State Oil (PSO), as the bidders are seeking assurances from the government that there will be no roll back on the present pricing formula.”

He said the decision will result in slashing of OMCs and dealers’ margin by 20 per cent and it will send negative signals to the investors.

He urged the prime minister to put off the change in pricing formula until an OMCs delegation gets the opportunity to meet him and resolve the issue amicably to the satisfaction of all the stakeholders.

Zafar pointed out that OMCs and dealers’ margin had been linked to the consumer price as per the government directive. He added that change in the oil pricing formula should be accompanied by the adjustment in the OMC and dealers’ margin to neutralize the impact.

Chairman Pakistan Petroleum Dealers Association (PPDA), Abdul Sami Khan said that dealers were not happy over the cut in their commission by 50 paisa a litre.

He said the decision would also discourage marketing and exploration companies from future investment.

However, market analysts see no big relief in price for the consumers in view of rationalization of petroleum products pricing formula.

“Consumers may get a price cut of 60-80 paisa per litre owing to the change in pricing formula,” head of research in Jehangir Siddiqui, Mohammad Sohail, said.

He said the expected profitability of the PSO will be reduced by 11-13 per cent in coming years due to the reduction in margin on regulated oil products.

An analyst at KASB Securities is of the view that change in margin would slice off PSO’s earning by Rs194 million in 2006 and impact on earning, estimated at Rs587 million, would be more pronounced in 2007.