OCAC warns of petroleum products shortage

The premier body of oil industry Oil Companies Advisory Committee (OCAC) has warned Prime Minister Yousuf Raza Gilani that any absorption of global oil price hike effective from April 1 may result in collapse of the oil sector leading to wide spread shortage of petroleum products across the country.
Oil and Gas Regulatory Authority (Ogra) has calculated 10 to 26 percent increase in oil prices for the month of April and government will have to provide Rs 16 billion subsidy if the rise in global oil prices is not passed on to the consumers. The government claims that it has faced a financial hit of Rs 21 billion in recent months by not passing on the rise in international oil price to domestic consumers.
According to a letter sent to Prime Minster, a copy of which is available with Business Recorder, OCAC chairman wrote: "On behalf of a delegation of the Chief Executives of OCAC member companies, I request a meeting with Your Excellency before March 31 to discuss outstanding oil industry issues which need urgent attention to avoid imminent collapse of the oil sector." He added that the worsening circular debt issue and the unilaterally enforced adverse changes in the ex-refinery pricing mechanism over the past two years have already severely crippled the local supply chain.
Prime Minister has been informed that the refineries huge receivables as a result of circular debt run into billions of rupees. "Also the ECC decision on revision of pricing mechanism taken in December 2010 has been put in abeyance and the recent continuous increase in international crude prices has drastically reduced the refinery margins which were in any case negative on about 50 percent of the refinery production state," letter adds.
Referring to oil marketing companies the letter said, considerable deterioration in the gross margins of refined oil has taken place in the recent past as government of Pakistan significantly lowered fixed margins of each product. "Due to constantly rising trend of international prices which were not fully passed on to end users, the margins have further declined and they are virtually negative and unsustainable," OCAC Chairman said adding "please note that government has failed to reimburse Price Differential Claims (PDCs) and associated financing cost on Mogas imports as well as High Speed Diesel (HSD) and other products worth billions of rupees and outstanding for over three years". OCAC members include downstream oil industry (Refineries, Oil Marketing Companies and Pipeline Company) and it is the premier body representing the industry.