OMCs, dealers' fixed margin: government refuses to withdraw decision

The government has turned down the request of the oil marketing companies (OMCs) and dealers to withdraw its decision in respect of fixed margins on petroleum products despite one multinational OMC threatened to wind up business in case the decision was not overturned, Business Recorder has learnt. Sources said that the Petroleum Ministry recently held a meeting with OMCs on the issue of fixed margins on petroleum products.
The OMCs urged the Petroleum Ministry to overturn the decision, saying that fixed margins would not allow them to continue to do business in the country. "One major multinational company in Pakistan threatened to shut down business in Pakistan if the government does not withdraw its decision of fixed margins," sources said, adding that Secretary, Petroleum, refused to succumb to pressure.
Petroleum Secretary Imtiaz Qazi clarified that the Economic Co-ordination Committee (ECC) of the Cabinet had taken the decision to fix margins in the light of Judicial Commission Report and, therefore, the ministry could not revert it. Judicial Commission, led by Justice Bhagwan Das, had suggested fixing margins in absolute rupee terms, instead of percentage mode. The ECC subsequently approved fixed margins of OMCs and dealers in absolute rupees terms, instead of 3.5 percent and 4 percent respectively, implemented from December 1, 2010 as follows: Rs 1.50 per litre petrol, Rs 1.72 per litre HOBC (high octane blending component), Rs 1.58 per litre kerosene and Rs 1.61 per litre light diesel oil for OMCs. The dealers' margin was fixed at Rs 1.87 per litre on petrol and Rs 2.15 per litre on HOBC.
The government passed the impact of reduced OMCs and dealers margins to the general public and did not raise oil prices despite a surge in global oil prices. The ECC also allowed refineries and OMCs to fix their ex-depot prices on monthly basis.The Oil and Gas Regulatory Authority (Ogra) and the ECC would now have a role in pricing, but as watchdogs to ensure transparency. "ECC's decision to deregulate the price mechanism has not been implemented so far," sources said.
Oil refineries will also continue charging 7.5 percent 'deemed duty', which the Judicial Commission had recommended to be abolished. Oil refineries have generated Rs 80 billion on account of 'deemed duty' from 2002 to December 2009. In the new oil pricing mechanism, ECC also approved controlled-deregulation of Inland Freight Equalisation Margin (IFEM) under which freight charges will vary from one destination to another. Ogra will notify actual cost of IFEM, but OMCs will be free to compete with each other in notified freight cost.