Trade finance availability: OMAP urges govt to ask banks to increase limit

LAHORE: Country’s oil sector on Wednesday demanded the government to direct banks for enhancing trade finance/LC lines in order to ensure smooth supply of oil.

In a letter written by Chairman Oil Marketing Association of Pakistan Tariq Wazir Ali to Finance Minister Miftah Ismail demanded that the government should ask the banks to increase the limit of availability of trade finance. In the letter, the OMAP drew finance minister’s attention towards availability of financing facilities from commercial banks.

“Availability of trade finance/LC lines is severely limited, and banks have not increased their lines in line with increase in oil prices which, coupled with forex rates, have gone up by 2.4 times,” the letter said. The letter also said that in addition, the FX losses being incurred by the OMCs are not being fully compensated and they have no visibility of the limited compensation of FX losses being incorporated by PSO in the pricing. Furthermore, since the smaller OMCs do not have allocations from local refineries on the same scale as compared to old and well-established OMCs, a higher proportion of products is imported by OMAP members resulting in greater FX losses due to the depreciation of the Pakistani Rupee.

The association demanded that government should intervene and support in resolving these issues on war footing so we can continue to run our business and serve millions of customers and save the employment of tens of thousands of our employees.

The letter further said that turnover tax of 0.50 percent does not correspond to corporate tax and almost 50 percent of OMC margin is now payable as turnover tax. This position is unsustainable and will very quickly kill the industry. On top of this, the carry forward of minimum tax has also been abolished in the recent budget essentially implying a fixed tax of Rs 1.9 per liter out of our Rs 3.68 per liter margin. The association requested the finance minister that local players in the oil marketing sector are seeking the government’s attention as they are not only major shareholders in the country’s economy but also helping to feed more than one million families.

In the first 60 years, there was only one local player in the oil marketing sector which was the state-owned entity, i.e. Pakistan State Oil (PSO) while others were multinational companies working in the country.

Supported by successive governments, in the last 15 years, local private players emerged in the oil marketing sector. Many local players emerged and started serving the nation with the provision of services and quality with the standards competing with multinational companies. These local players not only started operating petrol pumps but the motor oil and other related businesses also flourished in these 15 years.

Oil Marketing Companies (OMCs) are a source of employment to more than 250,000 people who support more than 1 million citizens of Pakistan. They supply petroleum products to more than 10,000 petrol pumps across Pakistan, serving people, businesses, farmers, Industries and our Armed Forces.

Members of Oil Marketing Association of Pakistan (OMAP), these small OMCs have created almost 50 percent storage for petroleum products in the country in only 15 years whereas the other 50 percent storage capacity was built by large OMCs in the country over 70 years. Despite major investment in the sector, these new OMCs have 20 percent share in the market.

However, local OMCs are performing better than foreign companies because they understand the environment and needs of the people. These local companies are getting local as well as foreign investment in the country, but we continue to face discrimination in getting appropriate support from Financial Institutions to operate.

Copyright Business Recorder, 2022