OMAP calls proposed OMC margin ‘inadequate’

LAHORE: The Oil Marketing Association of Pakistan (OMAP) has urgently sought the intervention of the Ministry of Petroleum regarding the proposed revised margins for oil marketing companies (OMCs).

Expressing concerns about the recent proposal submitted by the Oil and Gas Regulatory Authority (Ogra) for margin revisions, Chairperson of OMAP Tariq Wazir Ali stated that the proposed margin is significantly below the level necessary for the healthy functioning of OMCs. “While we fully acknowledge Ogra’s role as a regulator responsible for ensuring fairness in the petroleum sector, this proposal does not accurately reflect the cost of doing business,” he said.

Given the escalating costs of operations, decreasing sales, pending sales tax refunds, foreign exchange loss adjustments, and rising operational expenses, the current margin structure fails to support the financial viability of OMCs. This is particularly alarming in an industry where operational and logistical challenges already yield thin margins. “If the margin remains at the proposed level, it would severely impact the ability of OMCs to cover even basic operational requirements, let alone invest in critical areas such as infrastructure development, digital transformation, and safety protocols,” he observed.

It is essential for Ogra, as the custodian of this sector, to advocate for a margin that truly reflects the operational realities faced by OMCs. If Ogra has been entrusted by the Ministry to recommend a suitable margin, we expect this recommendation to be based on a detailed and accurate assessment of the OMCs’ business landscape. A margin that fails to account for the high costs of doing business will only lead to diminishing returns for the entire sector, potentially resulting in the closure of smaller OMCs and reduced competition, the OMAP chairman added.

In the light of the factual situation, even established oil marketing companies have suggested a minimum increase in the OMC margin to Rs12.65 per litre, excluding the Rs2.5 per litre required for digitization. Emerging oil marketing companies have proposed a minimum margin of Rs15.9, based on the financing costs of maintaining a 20-day stock cover, turnover tax, handling losses, demurrage, unadjusted sales tax financing costs, and operating expenses.

Wazir emphasized that Ogra’s recent recommendation of a mere Rs1.35 per litre increase -- which includes Rs0.5 for digitisation -- is far below the minimum required level. “This recommendation seems almost farcical, as it fails to address the genuine financial challengesfaced by OMCs and cannot be considered a serious attempt to resolve the issue -- amounting to little more than eyewash.”

“Given these concerns, we strongly urge Ogra to reconsider the proposed margins and suggest a revision that aligns with current market dynamics”, he said, adding that an appropriate margin must be implemented to ensure the survival of OMCs and their ability to continue providing reliable and efficient services across Pakistan.

“We trust that the Ministry of Energy (Petroleum Division) will support OMCs during this challenging time and take our concerns seriously. We remain available for further discussions and hope our genuine demands will be addressed appropriately,” the OMAP chairman concluded.