OCAC seeks 27% margin hike for OMCs

April 11, 2025 (MLN): The Oil Companies Advisory Council (OCAC) has requested a 27% increase in the margin for oil marketing companies (OMCs), raising it from Rs7.87 to Rs10 per litre, to help sustain their operations in the short term.

In a letter addressed to the chairman of the Oil and Gas Regulatory Authority (OGRA), OCAC Secretary General Syed Nazir Abbas Zaidi urged the regulator to extend immediate support for the long-pending revision of OMC margins.

He also called for the recovery of sales tax-related costs—measures deemed essential for maintaining the sustainability and financial viability of OMCs.

According to the OCAC, the industry is under severe stress due to multiple unresolved issues, most notably the lack of OMC margin revision since September 2023, as per the press release issued.

Additionally, unadjusted sales tax amounting to approximately Rs73.48 billion (from April 2022 to June 2024) and the continued exemption of sales tax on petroleum products have had a profound and detrimental impact on the industry's financial health.

Despite repeated representations to the relevant quarters, this issue remains unaddressed.

The impact of sales tax exemption from July 2024 is estimated to increase the cost base of the industry by approximately Rs33 billion in FY 2024-25.

This substantial cost escalation, without a corresponding recovery mechanism, is further eroding the financial viability of the industry and is hampering its ability to invest in infrastructure, maintain operations, and meet regulatory requirements.

Additionally, the Industry continues to face challenges due to smuggling, high turnover tax, insufficient margins, and other cost pressures.

Given these challenges, it is imperative that the OMC margin be aligned with actual costs, as proposed by OCAC and discussed extensively with Ogra and Petroleum Division

According to the revised proposal OCAC has to sustain our operations in at least the short run.

According to OCAC, current margin of Rs3.01 per litre on 20 days’ stock cover- financing cost be increased by Rs0.21 to Rs3.22/litre.

Handling loss be increased by Rs0.55 per litre from Rs0.27 to Rs0.82 per litre and operating expenses be increased 1.17 per litre to Rs4.09 per litre from 2.92 per litre.

This implies that current margin be raised by Rs1.93 per litre to Rs8.13 per litre from Rs6.20 per litre.

The OCAC has further stated that gross profit % (based on CPI) be fixed at 23% from existing 27 per cent.

This indicates that current margin of gross profit will be increased by Rs0.20/litre from Rs1.67/litre to Rs1.87/litre.

The proposal is based on PSO’s cost, as approved by the ECC in September 2023.

All items included in the proposed margin are already part of the current margin.

Maintaining a 20-day stock is a licensing requirement; however, it ties up funds and leads to financing costs, which have been incorporated into the margin using the average 1-month KIBOR of 21.9% from July 2023 to June 2024.

Handling losses during the storage and movement of motor fuels are currently being recovered through the margin.

Operating expenses, being an integral part of the total cost structure, have been included in the margin to ensure fair cost recovery, and the Consumer Price Index (CPI) for July 2023 to June 2024 over the same period in the previous year was 23.41%, as published by the Pakistan Bureau of Statistics.

Accordingly, a profit of 23% has been incorporated in the margin.

The OCAC is also of the view that recovery of costs attributable to sales tax exemption (July 2024 onwards), financing cost of unadjusted sales tax (April 2022 to June 2024), and demurrages onan  actual basis through IFEM for both OMCS and refineries.

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