Another storm seems to be brewing, and if not looked into seriously, it could bring the official machinery to a halt. This time, the oil industry appears to be panicking. It is finding it difficult to arrange crude oil and other petroleum products due to foreign exchange restrictions and the pricing of the product. This issue has arisen after the currency depreciated and the central bank’s policy rate increased. The association of more than three dozen major oil marketing companies (OMCs)-the Oil Companies Advisory Council (OCAC)-has warned the government of an impending disruption in the supply.
In a letter, the OCAC has asked the ministers for finance and energy, the State Bank of Pakistan governor and the Oil and Gas Regulatory Authority chairman to address the “severe impact of the recent depreciation of the rupee”. It reiterated that a mechanism be developed for the recovery of foreign exchange losses in product pricing and that rates be set based on the current exchange rate. The organisation further said that if this was not possible, then a system should be implemented immediately. In its letter, the OCAC said: “We request the development and immediate implementation of a holistic mechanism for recovery of industry’s exchange losses through inland freight equalization margin (IFEM) to manage the situation and ensure industry’s survival.”
The oil industry further warned that “there is a grave danger that import of crude and refined products may be disrupted” due to the recent depreciation of the rupee against the dollar, as a result of which the cost of opening letters of credit (LCs) had increased manifold, and impacted profitability.
The oil marketing companies have reportedly suffered about Rs35 billion cumulative losses due to petroleum pricing in recent months. The industry urged the government to see to it that the banking sector increased limits for oil firms and refineries so that they could manage the impact of increased oil prices and rupee depreciation. The OCAC ended by saying that oil companies were nearing collapse, which could be gauged from the episodes of fuel shortages that hit several cities recently. It, therefore, sought government intervention on an urgent basis to ensure uninterrupted supplies.
Earlier, several petrol pumps had to be shut down in many cities, including Lahore, after the petrol supply was disrupted. If the supply is indeed disrupted, the country might plunge into a severe crisis, hitting power plants that run on petroleum and the transport sector. The government needs to act quickly to ensure that the concerns of the oil firms are removed. With summer approaching, power consumption would increase. Loadshedding is already a common occurrence, and any further cut would throw factories and businesses out of gear.
