OCAC asks govt to revise OMCs’ margin

ISLAMABAD: The Oil Companies Advisory Council (OCAC) asked the federal government to revise Oil Marketing Companies (OMCs) margin to meet their operational cost.

In a letter to the prime minister, the council says that the OCAC is an independent organisation formed by refineries, OMCs and a pipeline company.

Its roles and objectives are to represent the Downstream Oil Industry at various government and non-government forums in matters relating to its members to ensure continued viability of the downstream sector. On behalf of member companies, the council wish to draw attention to two key challenges currently faced by the industry.

First, the Finance Act 2024 changed the sales tax status of petroleum products from zero rated to exempt supplies which has led to disallowance of input sales tax claims, causing a substantial increase in operational and capital costs.

The above change in sales tax law is severely impacting the financial viability of our planned upgrade projects, infrastructure development, and day-to-day operations.

The continuation of this exemption will result in significant erosion in profitability and severe financial strain on the industry, jeopardising the progress and sustainability of crucial capital-intensive projects essential for the uninterrupted supply of petroleum products nationwide, thus, nullifying the objectives of the Brownfield Refining Upgradation Policy which was approved by the government under your dynamic leadership in August 2023.

Despite continuous follow-ups over the past seven months and active coordination with the Ministry of Energy – Petroleum Division (MEPD), Oil and Gas Regulatory Authority (OGRA), Federal Board of Revenue (FBR), Ministry of Finance (MoF), and the Special Investment Facilitation Council (SIFC), the issue remains unresolved. This matter is critical for the survival of the industry in Pakistan, and its prolonged delay is causing significant challenges.

Second, the OMC Margin revision was due in September 2024, however, the same has not been finalised as yet.

In June 2024, the AC had recommended increase based on critical cost considerations, including financing costs of maintaining a 20-day stock cover, turnover tax, handling losses, demurrage costs, financing cost of unadjusted sales tax and operating expenses incurred by the OMCs.