Revision in OMC margins proposed | The Express Tribune

Revision in OMC margins proposed | The Express Tribune


ISLAMABAD:

The Oil and Gas Companies Advisory Council (OCAC) has expressed concern about the approval of the Autonomous Dealer Margin Review, which will take effect on August 1, 2022.

The government recently approved an increase in dealer profit margin to Rs 3 per liter, bringing the total profit margin to Rs 7 per liter.

In a letter to the Secretary of the Department of Energy – Oil and Gas Division, OCAC on behalf of Oil and Gas Marketing Companies (OMCs) said that dealer and OMC profit margins have been revised jointly in past.

“This is done not only for consistency but also because it is understood that the business costs of CMOs and agents are aligned. Therefore, any increase in costs applies to both the CMO and the agency. “

OMC faces significant additional risks and costs from which dealers are protected,” OCAC said, arguing that increasing dealer profits on an independent basis. is detrimental and would set an undesirable precedent”.

“It is worth repeating that OMC’s profit margin is not sufficient to cover costs that are not included in the price.”

OCAC argues that financing the 20-day maintenance cost of pipeline inventory and the inventory coverage ratio has consumed about 70% of current OMC profit margins.

Sales tax 0.5% consumes about 30% of MOC’s profit margin. This significantly reduces the profitability of CMOs.

Delays of ships due to port congestion have led to a downturn and also reduced MOC margins. In addition, the fee for confirming the letter of credit has increased significantly and severely affects the profitability of CMOs, according to OCAC.

Based on the current global and local scenario, OCAC recommends that OMC’s profit margin be adjusted to Rs 8.85 per liter for high-speed gasoline and diesel from August 1, 2022.
“It is clear that immediate action is required to ensure the existence of MOCs and that urgent action is required to modify MOC profitability,” OCAC said.

In a summary provided to the Economic Coordinating Committee (ECC) at a recent meeting, the oil division proposed increasing the dealer’s profit margin from Rs 4.90 per liter to 7. Rs/liter on petrol and from Rs 4.13/liter at Rs 7/liter on high-speed diesel.

The division has also proposed increasing OMC’s profit margin to Rs 7 per liter for petrol and diesel due to high operating costs, sales tax and other financial issues.

He told ECC that OMC has low margins on petroleum products due to the high cost of doing business in Pakistan.

Most of the oil supply is provided by the state-owned oil marketing company Pakistan State Oil (PSO). It is also the largest supplier, distributor and importer of oil to meet the country’s strategic needs.

PSOs are facing a circulating debt issue as their claim has grown to over Rs 600 billion and facing cash scarcity.

Posted in The Express Tribune, July 31, 2022.

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