ISLAMABAD: Pakistan’s oil industry has opposed reports of another intervention in the petroleum pricing formula, warning that further reductions in allowable margins could disrupt fuel supplies, reduce refinery throughput and push oil marketing companies (OMCs) and refineries into an increasingly unsustainable operating environment.
Industry sources said reports of fresh changes to the pricing mechanism were circulating, but neither refineries nor OMCs had been formally consulted by the government.
If implemented, the proposed changes would represent what industry officials described as the ninth intervention in the petroleum pricing formula since the Middle East crisis began.
“We have neither been consulted nor taken into confidence. As far as the industry is concerned, these are still rumours,” a senior industry source said, adding that any further reduction in allowable cracks would place additional pressure on the sector.
Industry Warns of Supply Risks
Member companies of the Oil Companies Advisory Council (OCAC) have expressed concern that further cuts in margins could adversely affect the commercial viability of OMCs, refineries and the broader petroleum supply chain.
“Further reduction in cracks simply does not make commercial sense,” the industry source said. “There is a limit to how much the sector can absorb. If cost recovery is compromised, throughput will fall and the country could ultimately face disruptions in the supply of essential fuels.”
Industry officials stressed that companies could not continue purchasing fuel at high costs while selling it under a pricing mechanism that failed to adequately reflect their expenses.
“No one can buy expensive and sell cheap indefinitely,” the source said. “If the formula does not reflect the actual cost of doing business, companies cannot be expected to keep absorbing losses simply to maintain supplies.”
The industry has also questioned the reported proposal to use a 10-year average for calculating cracks, arguing that such a comparison does not adequately reflect the sharp increase in operating costs during the period.
“The government needs to be sensible. You cannot use a 10-year average for cracks when the cost of doing business has nearly quadrupled over those 10 years,” the source said.
The sector is also facing pressure from unresolved Price Differential Claims (PDCs) owed by the government, leaving companies with legacy receivables while their margins are potentially being squeezed further.
“The government has yet to resolve the outstanding PDCs and at the same time the sector is being squeezed further. This is not sustainable,” the official said.
Policy Uncertainty Dents Investor Confidence
A senior equity market analyst associated with an investment banking institution said repeated changes to the petroleum pricing framework were damaging investor confidence.
“Pakistan’s policy inconsistency is pushing the country further behind in terms of investment,” the analyst said. “Investors cannot commit long-term capital when rules governing their returns are repeatedly changed.”
The analyst pointed to international refining markets, noting that diesel cracks in the United States have at times exceeded $100, yet authorities do not intervene simply to suppress market-based pricing.
“When the world’s most powerful economy allows market economics to operate even if cracks rise sharply, Pakistan needs to think very carefully before repeatedly interfering with the commercial mechanism,” he said.
The analyst said the policy contradiction was particularly concerning because the government is seeking around $6 billion in investment for the modernisation and upgrading of Pakistan’s refining sector.
“On the one hand, the government is looking for $6 billion of refinery investment. On the other, it is taking decisions that undermine investor confidence and commercial viability,” he said. “If this continues, the $6 billion investment ambition risks remaining an unfulfilled dream.”
He added that refinery modernisation requires billions of dollars in long-term capital, making a predictable regulatory and pricing framework essential for investors.
Foreign OMC Investors Raise Concerns
Concerns have also emerged among foreign investors that have recently entered Pakistan’s oil marketing sector.
Industry sources said some foreign players were questioning their investment decisions amid regulatory uncertainty and repeated interventions affecting the economics of the oil business.
“Foreign investors came into the OMC sector expecting a commercially sustainable and predictable framework,” an industry source said. “Some are now regretting those investments. Pakistan should send exactly the opposite signal at a time when it is trying to attract fresh foreign capital.”
Industry officials cautioned that the issue should not be viewed merely as a dispute over corporate margins.
They warned that if refinery operations become economically unviable and throughput declines, Pakistan could become increasingly dependent on imported petroleum products. This could increase foreign exchange requirements while exposing the country to international supply and price risks.
“This is ultimately about security of supply,” the official said. “You cannot keep squeezing every part of the supply chain and expect it to continue functioning normally.”
The industry has urged the government to consult the OCAC, refineries and OMCs before introducing any further changes to the pricing formula and to assess the potential impact on cost recovery, refinery throughput, fuel availability and future investment.
Industry representatives stressed that short-term efforts to suppress fuel prices should not undermine long-term energy security.
“Short-term price suppression should not come at the cost of long-term energy security,” the official said. “Once refineries are forced to cut throughput because the economics no longer work, the consequences will ultimately be borne by consumers.”
Story by Zafar Bhutta
