LAHORE: Oil Marketing Association of Pakistan on Sunday demanded that exchange rate adjustments should be passed on to its actual entities in letter and spirit.
The letter written by chairman OMAP Tariq Wazir Ali to chairman Oil and Gas Regulatory Authority pointed out that it is highly astonishing that the exchange rate adjustment is not truly passed on to the actual rightful entities in letter & spirit. “Exchange rate adjustments are distributed uniformly across all OMCs, i.e., without consideration of who is or is not eligible. Yet, in real sense, it needs to be distributed in accordance with their imports and payments,” the letter said.
Let’s take an example, a genuine exchange rate loss might occur if an OMC imported in M months and sold its products in the same month but was unable to make payment in M+1, M+2, or M+3.
In such a case, it is suggested to create a pool from which funds are given to OMCs based on their real exchange loss or gain or to let OMCs to recoup their exchange loss or gain in accordance with the payment they made in dollars. By making a pool a big factor of hoarding will automatically be curbed.
Big companies manage quota allocation in PR meeting enjoying favoritism and get undue and unjustified payments, which is causing a big loss to the country & add to the people’s misery.
OMAP suggested that creation of a pool for such payments, as narrated above will not only bring a harmony and smoothness in disbursement operations making it justified but also prevent hoarding in an effective manner.
As per the letter it is evident that the Oil Marketing Industry has lost billions of rupees as a result of the Pakistani Rupee’s rapid depreciation. This industry is already in a dire situation because Letters of Credits (LCs) are being settled / retired at the new exchange rates even though the related goods have already been imported and sold.
As of exchange rate losses are being passed on partially, PSO recently brought this issue to OGRA’s attention. According to PSO calculations supplied with OGRA, the exchange loss adjustment for PMG and HSD came to Rs. 16.21 and Rs. 163.02 per liter, respectively, whereas only Rs. 15.74 and Rs. 27.80 per liter were adjusted for current prices starting on March 1, 2023.
OMCs would be under a burden in this situation, and they cannot continue operating with such a price anomaly. That also goes against the officially approved price structure. Resultantly industry is suffering with PKR 35-40 billion losses. The oil marketing sector is still experiencing significant losses and is under a lot of strain. Also, the exchange losses vary based on the products that OMCs import.
By applying an exchange loss adjustment through price, while OMCs with a greater percentage of imported products receive less compensation than entitled. Because to this occurrence, OMCs and other entities that acquire or sell the local refineries’ output or have minimal or no imports have unfair and unrealistic advantages.
The letter also pointed out that this unethical activity favors those who engage in the sale of petroleum products that are locally manufactured or procured, yet they manage to receive benefits that are solely intended for petroleum product importers. Due to this anomaly, emerging OMCs are facing an additional loss of PKR 20 billion, in addition to the above-mentioned loss.
The prime reason for these losses is partial settlement, unfair and unjustified distribution of exchange rate losses, taking PSO as benchmark & wrong calculation of formula by OGRA. We strongly suggest that any such amount disbursed in unjustified way should immediately be recovered and should be disbursed to real affecters.
Moreover, Emerging OMCs are not getting level playing field with reference to product allocation from refineries. They offer products to emerging OMCs only at the time of low demand and restrict allocations as soon as demand is up.
Copyright Business Recorder, 2023