Petroleum imports: OMAP seeks review of existing formula for calculating exchange rate

LAHORE: Oil Marketing Association of Pakistan (OMAP) draws the attention of the Ministry of Petroleum towards the matter of critical importance regarding the calculation of the exchange rate for petroleum imports.

In a letter written by Chairman OMAP Tariq Wazir Ali to the secretary Ministry of Energy Petroleum Division in which the association requests the government for a comprehensive review of the existing formula for calculating the exchange rate, emphasizing the considerable exposure of the private sector to substantial losses due to fluctuations in exchange rates. We seek a revision that aligns with ground realities and shields private Oil Marketing Companies (OMCs) from perpetual suffering under the current methodology. To this end, OMAP is seeking a meeting with government functionaries to collaboratively enhance the existing pricing formula, ensuring it does not continue to adversely impact private OMCs and refineries.

As per the letter presently, numerous OMCs and refineries are grappling with significant losses attributed to fluctuations in exchange rates. Our primary request is for exchange losses to be compensated based on actual losses, not the existing formula benchmarked against the exchange losses and gains of Pakistan State Oil (PSO). While the last revision of the pricing formula, effective from September 1, 2020, addressed a crucial issue by shifting the price to an average of Arab Gulf Platts, there remain anomalies that urgently need attention.

Notably, the methodology for adjusting exchange losses and gains requires prompt review to ensure all industry members are fully accommodated for the impact of exchange rate fluctuations. We earnestly request government functionaries to engage in consultative sessions with industry members, allowing them to voice concerns and collaboratively devise a viable mechanism for comprehensive adjustments of exchange losses and gains through pricing.

According to the letter under the current pricing formula, the exchange rate is PSO benchmarked, which presents an inherent disadvantage to private sector OMCs. Unlike PSO, private companies lack the facility of Letters of Credit (LCs) based on 30-60 days of credit and access to controlled exchange rates. Private entities must resort to commercial bank rates, often higher than those issued by the State Bank of Pakistan. When exchange losses occur, private companies bear the brunt, facing additional challenges such as high LC confirmation charges.

In conclusion, OMAP urges immediate attention to this matter, emphasizing the need for a revised methodology that ensures a fair and equitable approach to exchange rate adjustments. We believe that collaborative efforts can lead to a solution that addresses the concerns of all stakeholders.

Copyright Business Recorder, 2023