ISLAMABAD, Aug 8: Oil marketing companies (OMCs) have warned the government of disruption in oil supplies in the country if it delayed payment of Rs19 billion owed to them as compensation for putting a freeze on oil prices despite rising prices in the international market, senior officials and industry representatives confirmed.
The move is seen by the government as a pressure tactic to pre-empt implementation of a recommendation of the National Accountability Bureau (NAB) that seeks compulsory audit of all claims the government is required to pay to the oil marketing companies and refineries on account of price differential.
The issue emerged a couple of weeks ago when the National Accountability Bureau (NAB) completed its comprehensive investigations into the oil pricing mechanism of the last years and found serious flaws with the system.
The NAB has submitted its report to the prime minister and has concluded that it was not proper on behalf of the ministries of petroleum and finance to make payments to the companies without prior audit, officials said. However, they did not disclose further details of the findings.
“The OMCs have started defaulting on payment to refineries due to reaching their upper borrowing limits and as a result refineries in return may start default on international crude payments, leading to possible curtailing in refinery production which may lead to disruption of the fuel supply chain within the country,” said a letter written to the prime minister by the Oil Companies Advisory Committee (OCAC).
“The move is aimed at thwarting the audit recommended by the National Accountability Bureau (NAB) on oil pricing and it is now up to the prime minister to sustain the pressure,” an NAB official said, who declined to be identified. The NAB has also raised questions about non-completion of two enquiries and special audits ordered by the petroleum minister on the subject.
OCAC officials are currently holding meetings with Advisor to the Prime Minister on Finance and Energy Dr Salman Shah and Mukhtar Ahmad respectively besides senior officials of the prime minister’s secretariat and finance on a regular basis to resolve the issue.
They said the non-payment of outstanding amount was putting an extra burden of financial charges and consequently some of the foreign companies had put on hold their investment plans in Pakistan.
The OCAC — a cartel of oil companies that used to fix oil prices for more than five years under a controversial government decision and pricing mechanism — sought the prime minister’s personal and immediate intervention “for early release of Rs18.7 billion to avoid any disruption in diesel supplies that could impact the growing economy and citizens of Pakistan”.
Following the submission of the NAB report to the prime minister, the ministry of petroleum has declined to make any payment to the oil companies. An official of the OCAC said the secretary petroleum had expressed his complete inability to be of any help for the payment of outstanding dues. However, the ministry of finance was preparing a case for approval from the cabinet to pass on the impact of rising international oil prices to the consumers, owing to its increasing financial burden.
The government decided last year to pay to the companies PDC for maintaining lower rates in the domestic market. The companies under the existing policy are entitled to charge oil prices at international rates, notwithstanding partial local production and imports from the Gulf market which remains at least 20 per cent lower than London and New York rates.
By the end of July 2006, the government owes the oil industry a sum of Rs18.50 billion which is increasing at a rate of Rs2.5-3 billion every fortnight as international prices surge and a freeze on domestic prices for the last two-three months.
Diesel with about nine million tons of annual consumption is the major product that could disrupt normal life and is commonly known as “killer fuel” because of its higher import cost.
