The Economic Coordination Committee (ECC) agreed to an extra Rs11.73 billion as a supplemental grant on Tuesday to cover the cost of paying Price Differential Claims (PDCs) to Oil Marketing Companies (OMCs) and refineries till March 31, 2022, in order to maintain petroleum prices stable.
Petroleum Division stated in a summary to ECC that state-owned Pakistan State Oil (PSO) and other OMCs have complained about the payment mechanism of the PDC submitted in an earlier summary to ECC, and have requested that the PDC be applied to the sale of petroleum products rather than the procurement of products.
The Oil and Gas Regulatory Authority (OGRA) will provide information of PDC disbursed to OMCs/refineries of the ECC through the Petroleum Division, along with an estimate of PDC demand for the next fortnight.
The Petroleum Division calculated that international oil prices have risen further in the last two weeks (Arab Light Crude Oil price reached $118/bbl), resulting in a PDC of Rs31.73 billion (Rs2.60 billion for November 1-4, 2021, and Rs29.13 billion for March 2022) as opposed to the allocated sum of Rs20 billion. As a result, an extra Rs11.73 billion in supplemental grant funding is required.
PDC may be compensated for product sales rather than procurement, according to the PSO. The Ogra concurred with the PSO’s position and recommended that the PDC be paid out on sales. Ogra has also requested that the Ogra provide the information of PDC dispensed on OMCs/refineries to the ECC through the Petroleum Division, along with a projected PDC requirement for the next fortnight. The PDC payment method has to be changed to accommodate the concerns of PSO and other OMCs.
On March 7, 2022, the Cabinet’s ECC evaluated the report given by the Petroleum Division, which allowed the method for paying PDC to OMCs and refineries. In order to speed up the payment of the PDC, the ECC adopted a specific payment mechanism. The ECC also approved the establishment of a special assignment account with PSO to draw PDC for PSO’s own claims and issue PDC claims to other OMCs/refineries.
The ECC has also approved, initially, a provision of Rs20 billion through a supplementary grant for making payments to OMCs/refineries as quickly as possible for the months of November (1-4) 2021 and the current month to avoid a petroleum product shortage in the country, with the approval that proposals for further supplementary grants will be submitted to the ECC, as and when required, under the expected requirements.
The PSO has said that because it produced the PDC through the sale of petroleum products, OMCs will lose money if the PDC reimbursement is based on procurement rather than sales.
Private OMCs may withdraw from the market and cease to sell products. The PSO believes customers will only profit from the PDC if the product is sold via OMCs, and that simply buying the goods will not suffice.
The ECC had already agreed to include the terms “their external auditors” before the words “Chartered Accountant” on the Petroleum Division’s statement on reimbursement of PDC of OMCs on March 7, 2022.
“In order to avoid imminent shortages of petroleum goods, we suggest that the PDC element be eliminated by modifying petroleum product prices quickly or a subsidy system be created,” the Oil Companies Advisory Council (OCAC) wrote to the Petroleum Division on March 1, 2022.
Prime Minister Khan said on February 28, 2022, that the government will not raise petroleum product prices until June 30, 2022, in order to absorb the impact of a global increase in oil prices because of the Russia-Ukraine conflict.
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