Oil industry protests unilateral fuel price cut, warns of Rs105 billion losses to refineries, OMCs

The Oil Companies’ Advisory Council, which represents more than three dozen refineries and oil marketing companies, has protested the recent cut in petroleum prices, saying the decision was taken unilaterally and could result in estimated losses of around Rs105 billion for oil refineries and oil marketing companies, Dawn reported. 

In its letter, OCAC said the latest reduction had been made by changing the pricing formula again, creating significant financial exposure for downstream petroleum companies.

The council estimated that the decision would erode around Rs104 billion in value across refineries and oil marketing companies, based on industry stocks of about 505,000 tonnes of petrol and 655,000 tonnes of high-speed diesel.

It said these losses would directly affect working capital, liquidity and shareholder value, adding that they were not the result of operational inefficiency or market competition but of policy decisions imposed on an already stressed sector.

An industry executive said the federal cabinet had approved the petroleum pricing mechanism four times in less than three months, but the mechanism had been changed each time to the industry’s disadvantage.

According to the executive, the government first used a 15-day average when petroleum prices were rising, then shifted to a weekly average as prices, import premiums and war risk surcharges increased. It has now moved towards crude-based pricing instead of product import-based pricing.

In the latest decision, average premiums of three months were used, while the actual benchmark of Pakistan State Oil was not available, the executive said.

The executive said this was done despite petroleum imports being reviewed and approved by the National Coordination and Management Council, a newly created civil-military forum on energy supplies and pricing.

Giving an example, the executive said the ex-refinery price of diesel should have fallen by Rs30 per litre on June 19 under the prevailing formula, but was reduced by Rs81 per litre through a cabinet decision.

The executive estimated that PSO alone could suffer losses of about Rs50 billion after the latest price adjustment. Pak-Arab Refinery Company could face losses of around Rs25 billion, while all other companies could jointly lose about Rs30 billion.

He warned that several oil marketing companies could face bankruptcy, adding that Pakistan was already short of A-class companies after the exit of Shell, Total and Chevron.

OCAC said the industry had repeatedly warned the government about the financial impact of abrupt pricing decisions and growing policy uncertainty.