Deferment of rise in OMCs margin: IPI voices concern over ECC decision

ISLAMABAD: The Islamabad Policy Institute (IPI) Friday expressed concern over the Economic Coordination Committee of the Cabinet’s decision to defer an interim increase in the margin of Oil Marketing Companies (OMCs).

The ECC in its meeting had reportedly decided to put off the issue of raise in OMCs’ margin till a detailed study to be conducted by the Pakistan Institute of Development Economics (PIDE).

A sub-committee was also constituted to review the PIDE report.

The IPI’s energy expert, Dr Ilyas Fazil, said significantly missing from the ECC decision was the timeline for completion of the PIDE study, and its subsequent review by the ECC’s sub-committee.

A fair product pricing mechanism, he said, already exists in the country since October 29, 2014, when the ECC had, for the first time ever, linked the increase in the OMC margin to the Consumer Price Index (CPI), with effect from July 1, 2016.

Dr Fazil recalled that prior to the ECC’s 2014 decision; the PIDE had been even on that occasion assigned the task of proposing OMC and dealers’ margins in February 2013. But, finally when the PIDE report, on the previous occasion, reached the ECC it was rejected for being on the higher side as there was said to be a wide variation in the costs among the companies.

Thereafter, the energy expert said, the CPI-based mechanism was agreed and adopted in October 2014.

In the absence of deregulation, he observed, the OMCs rely totally on cost recovery through these margins, which have not been timely revised since 2014.

The last OMC margin increase was with effect from July 1, 2018.

As per the ECC’s decision, the margins should have been revised effective July 2019 which was not done.

The Ministry of Energy – Petroleum Division (MoEPD)’s proposal presented at the ECC meeting of January 28, 2021 was in line with the principle in vogue since 2014 - linking it to the CPI in the ensuing period since the previous increase.

Copyright Business Recorder, 2021