Pakistan's Oil Sector 'On Brink Of Collapse', OCAC Warns

Pakistan's Oil Sector 'On Brink Of Collapse', OCAC Warns
The Oil Com­panies Advisory Council (OCAC) has cautioned the Oil and Gas Regulatory Autho­rity (OGRA) and the energy ministry that the oil sector is on the brink of collapse due to a massive rupee plunge over the last few days. This is despite an eight per cent month-on-month reco­very in oil sales last month, as analysts argue the OCAC is signaling that another oil crisis could hit the country soon.

Pakistan's massive oil import bill, and the cartelisation of refineries and oil marketing companies whose interests are protected at the expense of the general public, is part of the reason for the country's perennial economic malaise.

The country’s overall oil sales (petrol, diesel and furnace oil) stood at 1.44 million tonnes in January against 1.33 million tonnes in December 2022. Oil sales dropped by 19% to 147 million tonnes during the first seven months of the current financial year (2022-23). The figure was 13 million tonnes for the corresponding period last fiscal year.

The OCAC informed the government that the constant depreciation of the Pak Rupee against the US dollar had caused losses "totalling billions of rupees", as letters of credit (LCs) were expected to be settled on the basis of new rates, whereas the petroleum, oil and lubricant (POL) products had already been sold on the old rates. Independent observers and energy experts argue that this is one of the mechanisms, along with other regulatory levies all of which are transferred to the end consumer, through which refineries and oil marketers skim off extra profits from the local market.

The OCAC lamented that its losses would have an impact on profitability and viability of the sector, and in some cases the losses might exceed "the entire year’s profit".

Although compensation for foreign exchange losses is allowed for 60 days – using Pakistan State Oil (PSO) as a benchmark after the Economic Coordination Committee’s approval for the same on 1 April 2020 – other OCAC member companies are "unable to recover their entire losses" due to "import profile differences" with PSO.

The OCAC has asked OGRA to immediately revise the mechanism and ensure that exchange losses of the sector are "fully reimbursed" if the regulator wishes to ensure the viability of the sector and of uninterrupted supplies to retail outlets.