Quite discretely, the last government (PML-N) jacked up margins on petrol and diesel but left the price hike to the caretaker government. Just on the eve of its last day in office, the government took a step to please the oil industry by approving 3.5 and 9.5 percent increase in OMC margins for petrol and HSD, respectively to Rs2.64 per litre both (see table for details). Dealers’ margins too were revised upwards by 3.6 and 9.7 percent for petrol and diesel.
The last round of the increase in margins took place in November 2017 when petrol margins were increased, while diesel margins were delayed and recommended to be deregulated from December 01, 2017. However, the deregulation of HSD margins remained in limbo as the FBR could not set up a GST recovery mechanism for the deregulated margins on time, which is why HSD got a higher increase this time around. All this has resulted in some uproar as the delay in GST recovery mechanism left no option but the diesel margins to also be linked with CPI-based formula.
While the oil companies have been able to get the margins revised upwards on the two main retail fuels, there is also another good news for Pakistan State Oil especially as margins on RLNG have also been increased.
There has been a 50 percent increase in LNG margins from 2.5 percent to 3.75 percent.
This was also done by the previous government just before leaving.
While margin increase has been good news for the oil marketing companies, it’s not smooth sailing for the oil companies. These companies are facing some real challenges as well. Apart from the gradual decrease in consumption amid higher retail prices, there has been an increase in cost for the OMCs as oil prices have started climbing once again. Then there has been an added pressure from the depreciating currency resulting in exchange losses and no more inventory gains.
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