ISLAMABAD: A conflict has emerged between local oil refineries and Oil Marketing Companies (OMCs) over the proposed imposition of a “Take or Pay” clause in Sales Purchase Agreements (SPAs), with OMCs strongly opposing the move due to fears of severe liquidity crises, supply disruptions and potential market exits.
Oil Marketing Association of Pakistan (OMAP), representing small and medium-sized OMCs, has written to the Oil and Gas Regulatory Authority (OGRA), warning that the proposed clause would disproportionately benefit refineries and large OMCs while pushing smaller players toward financial collapse.
The development follows a letter from five leading oil refineries including Attock Refinery Limited (ARL), National Refinery Limited (NRL), Pak-Arab Refinery Limited (PARCO), Cnergyico PK Limited (CPL), and Pakistan Refinery Limited (PRL), have called upon OGRA to ensure that OMCs fulfill their obligations by uplifting locally refined petroleum products before resorting to imports.
In a letter addressed to OGRA Chairman Masroor Khan, the chief executives of these refineries argued that OMCs have frequently failed to lift agreed quantities of High-Speed Diesel (HSD) and Motor Gasoline (MOGAS), which has disrupted refinery operations and threatened supply chain stability. The refineries emphasized that while they maintain commercial agreements with OMCs, it is OGRA’s responsibility to enforce compliance with these contracts.
The refineries have pointed to Rule 35(g) of the Pakistan Oil (Refining, Blending, Transportation, Storage, and Marketing) Rules 2016, which mandates that local production must be prioritized before allowing imports. They have supported OGRA’s suggestion of introducing a “Take or Pay” clause to ensure product uplift but insist that it should be implemented through mutual agreement and strict regulatory oversight.
To address the matter, the refineries have urged OGRA to convene an urgent joint meeting with OMCs to finalise a binding clause that would guarantee the mandatory upliftment of refinery products before import permissions are granted.
A senior OGRA official, speaking on condition of anonymity, confirmed that such a meeting is likely to take place next week to discuss the proposal in detail.
OMCs, however, have so far strongly rejected the proposed “Take or Pay” clause, arguing that it unfairly places the burden of market volatility on them while refineries remain insulated from financial risks.
In a letter addressed to OGRA, OMAP Chairman Tariq Wazir Ali expressed serious concerns, stating that the clause would severely impact the financial viability of small and medium-sized OMCs. He highlighted the long-standing issue of refineries manipulating supply in response to price fluctuations.
According to OMCs, refineries often withhold supply when prices are expected to rise, forcing OMCs to import fuel at higher costs, while in periods of declining prices, refineries aggressively offload stocks, leading to financial losses for OMCs.
OMAP has also pointed out that the persistent influx of smuggled petroleum products has significantly reduced the demand for locally refined fuel, making it unreasonable to impose binding obligations on OMCs without first addressing the issue of cross-border fuel smuggling.
The association has warned that if OGRA enforces the “Take or Pay” clause without ensuring fair market practices, many small OMCs will face severe liquidity crises, leading to supply disruptions and potential market exits.
Instead of the proposed mechanism, OMAP has advocated for a “Take & Pay” model, which would allow OMCs to purchase fuel based on actual market demand and financial capacity rather than being forced into rigid pre-commitments.
The association has urged OGRA to take a balanced approach by holding refineries accountable for fair supply commitments and addressing the systemic issues affecting OMCs, including delayed product allocations, discriminatory pricing, and inadequate infrastructure support.
It is pertinent to mention that with growing concerns over refining capacity utilisation, supply chain disruptions, and market volatility, OGRA’s response to these conflicting demands will be crucial in determining the future regulatory framework for Pakistan’s downstream petroleum sector.
The upcoming meeting between refineries and OMCs will be a decisive moment in whether the industry moves toward a balanced regulatory approach or further deepens the divide between the two major stakeholders.
