Oil industry claims massive losses over POL pricing deviation

ISLAMABAD: The oil industry has expressed serious concern over deviation from the government-approved pricing formula for computation of price effective October 16, 2024, arguing it has caused massive losses to refineries and oil marketing companies (OMCs) as well. It has urged the government to immediately revise the POL price as per the existing pricing mechanism.

In a letter written on October 16, 2024, to the OGRA chairman, the Oil Companies Advisory Council (OCAC) said that this time, the government has deviated from its existing pricing formula and to manage the price, custom duty for HSD has been reduced from Rs15.18 to Rs13.26 per litre which will cause an approximate loss of Rs700 million during the second fortnight of October.

In addition to the forced reduction in Custom Duty, IFEM (Internal Freight Equalization Margin) was reduced by Rs3.04 and Rs.4.07 per litre for HSD and Mogas respectively. This reduction was made possible by the inclusion of the adjustment against Refinery Regulatory Duty amounting to Rs 3 billion during the current fortnight and this reduction will expose OMCs to reduced recovery of approved freight costs.

It is pertinent to mention that OGRA, while including recoveries related to line-fill financing costs, and pipeline losses has always stressed that adjustments should be evenly spread out over multiple pricing periods to avoid major fluctuations in IFEM. OCAC recommended in its letter that OGRA should stick to its words and ensure that all adjustments, to and from the industry, must be evenly spread out over multiple pricing periods to avoid unnecessary exposure for the industry.

The oil industry from the OCAC forum emphasised that manipulation of oil prices is not sustainable and will add to the challenges of the industry which is already constrained due to smuggling, high financing costs, exemption of sales tax, high turnover tax, insufficient margins, and other factors.