Oil marketing companies (OMCs) have raised concerns over the imposition of the ‘Take or Pay’ clause in their agreements with local refineries, warning that the move could lead to financial instability in the sector. The dispute emerges as fuel prices are expected to see a notable reduction by the weekend, with petrol prices possibly dropping by Rs12 per litre and high-speed diesel (HSD) by Rs8 per litre, according to estimates from the Oil Marketing Association of Pakistan (OMAP).
OMAP, which represents small and medium-sized OMCs, has formally opposed the clause introduced by the Oil and Gas Regulatory Authority (Ogra). Under this rule, OMCs must either purchase their allocated fuel quotas from local refineries or face penalties for failing to do so.
OMAP Chairman Tariq Wazir Ali expressed strong reservations about the clause, stating that it shifts the financial burden of market fluctuations entirely onto OMCs, while refineries remain shielded from risks. In a letter addressed to Ogra and the petroleum division, he argued that many OMCs are already struggling financially, and this clause would further weaken them.
Ogra recently directed all OMCs to sign new sale and purchase agreements (SPAs) with local refineries under ‘Take or Pay’ conditions. This requirement comes after repeated complaints from refineries that excessive fuel imports were reducing local production, leading to financial losses. Some refineries and OMCs have also accused Ogra of favoring a particular company by approving fuel imports despite sufficient domestic stock.
OMAP has voiced “serious concerns” over the proposed clause, warning that it could deepen the financial difficulties of smaller OMCs and lead to further consolidation in the sector, benefiting only larger players. The association criticized Ogra for introducing such a rigid policy without considering ground realities and the financial strain on smaller OMCs.
The association also highlighted concerns over refineries’ market practices, alleging that they manipulate supply based on expected price fluctuations. When prices are predicted to rise, refineries reduce supply, forcing OMCs to import at higher costs. Conversely, when prices are expected to drop, refineries offload maximum stocks, leading to inventory losses for OMCs.
Additionally, OMAP pointed out the persistent cross-border smuggling of petroleum products, which has significantly impacted the demand for locally sourced fuel. It urged regulatory authorities to address this issue before enforcing new supply obligations on OMCs.
OMAP warned that forcing financially strained OMCs to buy fixed quantities of fuel without considering actual market demand could lead to defaults, supply chain disruptions, and potential business closures. It called for a more balanced regulatory approach that holds refineries accountable for fair market practices.
Meanwhile, the country’s five refineries have supported the ‘Take or Pay’ condition, arguing that it is necessary to sustain domestic refining capacity. However, they also stressed that any amendments to supply agreements should be negotiated with all stakeholders and implemented through a transparent regulatory framework overseen by Ogra.
