Oil council warns of looming petroleum crisis

Oil Companies Advisory Council (OCAC) has warned of a brewing petroleum crisis, similar to the one in June 2020, in case the government kept domestic prices frozen till the next budget as per the prime minister’s announcement.

Warning the Ministry of Energy, OCAC, the umbrella organisation of oil sector companies in a letter requested the ministry to remove Price Differential Claim (PDC) element to revise petroleum product prices immediately or alternatively implement a subsidy mechanism.

Referring to the Oil and Gas Regulatory Authority (Ogra) announcement imposing Rs2.28/liter PDC on High Speed Diesel (HSD), the council highlighted the negative impacts on the oil industry.

OCAC noted that PDC has been imposed despite the critical condition of the industry, which was cited in its letter dated February 3, 2022, where the ministry’s support was requested to avoid further imposition of the claim. It was already pointed out that PDC would have an untenable impact on the oil industry’s cash flows, which would lead to catastrophic disruption in the POL supply chain of the country.

According to estimates of OCAC, current PDC on HSD would create a receivable of approximately Rs1 billion during the first fortnight of March 2022. This would add to the previous receivable of Rs2.6 billion pertaining to November 1-4, 2021 and Rs10 billion pertaining to 2004-2008, thereby further aggravating the financial challenges being faced by the industry.

OCAC pointed out that the industry was already facing severe financing issues caused by increasing international prices, devaluation of rupee against dollar, high import premiums and circular debt of around Rs1.3 trillion.

In order to ensure uninterrupted supplies and to manage working capital requirements, the industry has already requested the State Bank of Pakistan (SBP) to support in enhancement of their credit/financing limits and a meeting was held on February 28, 2022 in this regard. Sensing the gravity of the situation, the SBP governor has constituted a committee of leading banks to urgently give their proposals in this matter.

Additionally, the oil sector body said that the decision to maintain prices at current level till July 2022 would lead to further buildup of PDC for HSD and MoGas as international prices were rising sharply on account of the current geopolitical situation. A crisis would have serious and adverse impact on business continuity of a number of companies in the industry, OCAC said.

The council sought an urgent meeting of secretary energy within the next few days with industry representatives regarding the precarious situation and the challenges being faced by the oil industry to save the country from an imminent shortage of petroleum products.

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