The Oil Companies Advisory Council (OCAC) has proposed the “funded subsidy” mechanism for fortnightly reimbursement of Price Differential Claims (PDCs).
In addition OCAC urged the petroleum division to implement the mechanism for timely remittance of PDC of the oil industry.
On March 2, 2022, Petroleum Secretary Ali Raza Bhutta and Oil and Gas Regulatory Authority (OGRA) chairman Masroor Khan, in an urgent meeting with the representatives of oil industry including Oil Marketing Companies (OMCs) and refineries asked to submit their proposals regarding formulating a mechanism for fortnightly reimbursement of PDCs of the oil companies.
Petroleum secretary and OGRA chairman also gave assurances to the oil industry that its proposals would be immediately taken up with the finance ministry and a finalised mechanism would be shared with OMCs before seeking important approval from the federal cabinet’s Economic Coordination Committee (ECC).
Similarly, it was also mutually decided by the government and the oil industry representatives in the March 2, 2022 meeting that a mechanism for fortnightly reimbursement of the PDC will be urgently formulated through a government funded facility of banking arrangement in consultation with the finance ministry.
In a letter to Secretary Petroleum dated March 4, 2022 the OCAC proposed a mechanism to be based on government sponsored subsidy in the form of consortium of banks to facilitate business normalcy and support the ministry of energy in expediting the same.
“We request you to approve the mechanism enabling swift implementation of the process for timely remittances of PDC claims,” said OCAC letter, further adding ”As discussed in the meeting, the management of cash flow is critically challenging for the downstream sector owing to insufficient margins, rupee dollar parity, constraints in financing facility, circular debt, outstanding PDCs since 2004 and other external factors such as the geopolitical situation, high premiums, etc.”
“The sooner the process is approved and implemented, the quicker will be the redressal of already constricted working capital constraints faced by the oil industry,” said OCAC.
OCAC further sought favorable consideration on the shared mechanism and looked forward to formal approval enabling immediate implementation of the same before the announcement of new PDCs in the next fortnight, if any.
Earlier, the Oil Companies Advisory Council (OCAC) in a letter dated March 1, 2022 to petroleum secretary requested to remove the Price Differential Claim (PDC) by revising petroleum product prices immediately or develop an alternate subsidy mechanism in order to avoid imminent petroleum shortage of the petroleum products in the country.
OCAC also requested for an urgent meeting within the next few days with industry representatives to appraise the current situation and challenges being faced by the oil industry and to save the country from imminent shortage of the petroleum products.
It is noted with deep concern that PDC has been imposed despite the fact that OCAC had highlighted the critical condition of the industry.
OCAC, vide its letter dated February 3, 2022 had requested the ministry’s support in avoiding further imposition of PDC as the same will have an untenable impact on industry’s cash flows which would lead to catastrophic disruption in the POL supply chain of the country,
The OCAC further said that in order to ensure uninterrupted supplies and to manage working capital requirements, the industry had already requested the State Bank of Pakistan (SBP) to support in enhancement of their financing limits; a meeting was held on February 28, 2022 and sensing the gravity of situation the Governor SBP constituted a committee of leading banks to urgently provide their proposal in this matter.
As per OCAC, the decision to maintain prices at current level till July 2022 will lead to further build up of PDC for HSD and MOGAS as the international prices are on the sharp rise due to the current geopolitical situation.
If the local consumer prices are not aligned with the international market and PDC regime is continued, the industry will not be able to sustain and this will lead to severe supply chain disruption more so during the upcoming harvesting season resulting in a crisis of petroleum products shortage similar to what was faced in June 2020.
