‘Take or Pay’ provision in SPAs: OMAP concerned over proposed clause by Ogra

LAHORE: Tariq Wazir Ali, Chairman of the Oil Marketing Association of Pakistan (OMAP), has expressed serious concerns over a proposed clause introduced by the Oil and Gas Regulatory Authority (Ogra) regarding the “Take or Pay” provision in the petroleum sector.

In a letter addressed to Ogra Chairman Masroor Khan, Tariq highlighted the potential risks posed by the proposed imposition of the “Take or Pay” clause in Sales Purchase Agreements (SPAs) between refineries and Oil Marketing Companies (OMCs).

He emphasised that the matter requires urgent attention, as it could severely impact the financial sustainability of OMCs, which are already grappling with multiple unresolved issues that have awaited regulatory redress for an extended period.

Tariq further elaborated that the “Take or Pay” clause would have far-reaching consequences on the liquidity and operational capacity of OMCs. He pointed out that many small and medium-sized OMCs operate on thin profit margins with limited working capital. Enforcing the clause to compel these companies to uplift committed quantities of petroleum products, irrespective of market demand, would significantly increase their financial burden. This could lead to potential defaults, supply chain disruptions, and even force some OMCs to exit the market altogether. The letter underscores the need for the Ogra to reconsider the clause to prevent adverse effects on the already struggling OMCs and the broader petroleum sector.