Of OMC margins and dealer commission

Recall that the Economic Coordination Committee (ECC) had taken decision to raise OMC and dealer margins on both retail fuels – petrol and diesel – last year while pegging the annual revision to consumer price index (CPI). At present, OMCs are charging Rs2.41 per litre of petrol and high-speed diesel, whereas dealers are collecting Rs3.16 and Rs2.67 on per litre of petrol and diesel.

Now it’s that time of the year again. Actually, the revision in the OMC margins and dealers’ commission has been due since July 1, 2017; but some resistance from the regulator and the ECC, and then the current political turmoil both has been blamed for the delay. Earlier this year, the Ministry of Petroleum and Natural Resources had moved a summary to the ECC of the cabinet for the deregulation of HSD prices, which was strongly opposed by the OGRA and the Planning Commission and was not moved by the ECC.

However, the hopes of the downstream oil fraternity might get a boost with the ouster of Prime Minister Nawaz Sharif indirectly; a couple of months ago when the MPNR under Shahid Khaqan Abbasi sent the summary to the ECC, which was headed by Finance Minister Ishaq Dar, it was rejected. But now with Mr. Khaqan Abbasi as the Prime Minister, there are chances that the proposed revisions and the deregulation of the retail fuels might be taken up by the ECC as he recently reconstituted it – removed Mr. Dar and became the Chairman himself.

According to the news reports, the ministry has proposed a cumulative increase of 33 paisa per litre in OMC margin and dealer commission on petrol – the breakup is shown in the table. The ministry has also proposed either a margin hike for HSD or simply the deregulation of diesel prices. The proposed increase in dealers and OMC margins on HSD is also shown in the table.

Those proposing increase in margins and deregulation of HSD prices are of the view that it will encourage OMCs and dealers to invest in additional storage capacity that will help meet the rising demand of these retail fuels; there are also proposals to eventually deregulate the margins on petrol in a phased manner based on the outcomes of HSD deregulation. The deregulation effort is also linked to increasing the competition among filling stations, which will ensure quality and price check.

On the other hand, the opponents like the OGRA and the Planning Commission believe that such deregulation of retail petroleum products could be counterproductive and would result in the formation of cartel, and misuse of money.

While the views of both sides make sense, deregulation of high-speed diesel prices have been under review for years; and it would be interesting to see whether Mr. Abbasi moves ahead with the attempt.