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ISLAMABAD: Ministry of Finance (MoF) has reportedly opposed 16 per cent increase in margins of Oil Marketing Companies (OMCs), saying that upward revision of 6.58 per cent is sufficient till PIDE completes its study, sources close to SAPM on Petroleum Nadeem Babar told Business Recorder.

Sharing details, the sources said Economic Coordination Committee (ECC) of the Cabinet, in its decision of November 6, 2019 on the review of the OMCs’ and dealers’ margins on petroleum products, approved revision of margins for OMCs and dealers on Motor Spirit (MS) and High Speed Diesel (HSD) on the basis of average inflation as recommended by Planning Division for the whole period (April 2018 to May, 2019) i.e., 6.58% effective from December 1, 2019.

The ECC, in its decision also constituted a committee under the chairmanship of Special Assistant to Prime Minister on Petroleum, with Secretary, Petroleum Division, Secretary Finance Division, Secretary Planning, Development and Reform Division, OGRA and Pakistan Bureau of Statistics (PBS) and an academic or retired practitioner from the private sector as members.

The committee was to revisit the existing mechanism for determination of margins for OMCs and dealers on MS and HSD in a holistic manner and devise a revised mechanism for the purpose ensuring interests of all stakeholders, particularly the consumers. The committee was to submit its report to the ECC within two months. Petroleum Division was to provide secretarial support to the committee. The ECC also directed that in future the applicability of a formula should be from July to June.

In light of the ECC’s decision, Petroleum Division arranged three meetings of the committee in which it was decided to seek the consent/willingness of Institutes of Chartered Accountants to conduct the proposed study. ICMAP alone expressed its consent to the cost of Rs 4.50 million while ICAP regretted. Pakistan Institute of Development Economics (PIDE) was also requested as only a single institute (ICMAP) expressed its consent to undertake the study. PIDE expressed its consent at the cost of Rs. 2.50 million. The first study on margins was also conducted by PIDE in 2014. OGRA being the licencing authority of OMCs was requested to fund the study but the entity regretted. Meanwhile, on account of COVID-19, nobody was willing to do field work until recently. PIDE being a government body was asked through Planning Commission to update its previous study along the lines of ToRs for devising a formula in order to revise the margins in future by utilizing Cost Accountants’ expertise. Planning Division was also requested to meet the cost of study from its budgetary resources prior to the issuance of the award letter to PIDE as decided in the committee’s meeting of June 29, 2020 constituted by the ECC. However M/o Planning has shown reluctance in arranging funds for the study by PIDE.

In order to avoid any further delay, it has been proposed that the study cost may be met through the unspent training fund maintained by the Petroleum Division under the Petroleum Policy 2012 for hiring consultants, professionals and for preparing policies on development of the sector. Therefore, PIDE was advised to initiate the study in order to evolve an effective policy on margins as per the ECC’s mandate to be funded by the training fund. Meanwhile, OMCs explained in a meeting held on September 17, 2020 in the presence of the SAPM on Petroleum and Secretary Petroleum that their margins were required to be revised as per the ECC's mandate in July of each fiscal year but it is still pending due to lack of a study on margins to be carried out by PIDE.

A letter has also been written by Petrol Dealers Association in this regard to continue with the inflation-based method until the PIDE study is completed, rather than delaying or denying the increase since July 01, 2020. Therefore, they requested granting interim relief prior to completion of the PIDE study based on the existing method of the Consumer Price Index (CPI) as cost of doing business is much higher than the prevailing margins and most of the companies are facing losses due to higher rate of turnover tax, etc.

Accordingly, the revision in margins on MS/HSD) for OMCs and dealers has been worked out based on the CPI (prevailing during June 2019 to Oct 2020) duly published by the Pakistan Bureau of Statistics. The Petroleum Division has proposed an increase of Paisa 45 per litre (16 per cent) in OMCs’ margin on Motor Spirit (MS) and High Speed Diesel from existing Rs 2.81 per litre to Rs 3.26, whereas an increase of Paisa 58 per litre(15.7 per cent) has been proposed for MS dealers from Rs 3.70 to Rs 4.28 per litre. For dealers of HSD, an increase of Paisa 50 per litre (16 per cent) has been proposed in margins - from Rs 3.12 to Rs 3.62 per litre. The summary was circulated to OGRA, Finance and Planning Divisions for comments, and their views are supportive. However, Finance Division has suggested that the proposed rate of increase appears to be on the higher side therefore they have supported the increase allowed last year as an interim arrangement (6.58% instead of 16%) till the study is finalized subject to the adjustment as per outcome of the study. They have also suggested fixing a time line for completing PIDE's study.

The Petroleum Division maintains that due to devaluation, the increase of 16 per cent may be considered till June 2021 which may be revised as per outcome of PIDE's study effective from July 2021 as ECC in its decision of November 6, 2019 directed that in future the applicability of a formula should be from July to June.

Copyright Business Recorder, 2021

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