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OCAC caution Govt of Impending Collapse

KARACHI: The Oil Com­panies Advisory Council (OCAC) has sent a note of caution to 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.

Oil Sales paradox

Despite an 8pc month-on-month reco­very in oil sales last month with the country’s overall oil sales grew upto at 1.44m tons in Jan, against 1.33m tons in Dec 2022. A drop of 19pc to 10.47m ton was however posted during the first seven months of the current FY (2022-23). The figure was 13m tons for the same period last fiscal year.

the Rupee Plunge

The letter said, “the sudden rupee depreciation caused losses totaling billions of rupees as LCs were expected to be settled on the basis of new rates. Whereas the related product had already been sold. These losses would have an impact on profitability and viability of the sector. In some cases the losses might exceed the entire year’s profit.

the import difference With the local benchmark

The ECC’s approval of April 2020, allows the compensation for forex losses for LCs up to 60 days using PSO as a benchmark. However, other member companies are unable to recover their entire losses due to import profile differences with PSO.

The OCAC asked OGRA to immediately revise this mechanism and ensure that exchange losses of the sector are fully reimbursed if the viability of the sector and supplies to the retail outlets are to be ensured.

Subsequently, the committee requested the government to urgently revise this mechanism ensure supplies to retail outlets remain uninterrupted.

Passing the impact in one-go

“Due to challenges still being faced by the sector of previous exchange rate adjustments and the enormous impact of the current depreciation,” the OCAC urged the regulator to pass the impact of exchange rates in one go instead of staggering it.

Revising the Trade Finance Limit

The OCAC also noted that the trade finance limits available from the banking sector to the industry have become inadequate due to an increase in oil prices and depreciation of the rupee over the last 18 months. It indicated that the LC limits shrank overnight by 15-20pc due to the recent devaluation alone.

“In order to ensure the import of adequate products into the country, it is important to increase the trade finance and LC limits in line with current oil prices, exchange rate and volumes being handled by each company”.

The committee said the banking sector should be requested to raise the limit of OCAC member companies.

How far PDL may be pushed ?

Currently, the government is collecting Rs50 per liter as petroleum development Levy (PDL) on petrol and Rs40 on high speed diesel.

The Insight Research estimated that the govt is unlikely to achieve its budgeted target of Rs855bn even with a maximum possible levy of Rs50 liter. In the first seven months of the current fiscal year the max it may likely collect is Rs299bn.

The IMF has been pushing for more stringent measures to bridge the tax shortfall. This includes increase in PDL limits and the imposition of a general sales tax.

Zahra Sikandar
Written By


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