Oil companies sound alarm over Rs104bn hit after fuel price slash

The federal government has convened an emergency meeting with key stakeholders of the petroleum sector after oil refineries and oil marketing companies (OMCs) raised serious concerns over a

The federal government has convened an emergency meeting with key stakeholders of the petroleum sector after oil refineries and oil marketing companies (OMCs) raised serious concerns over a recent change in the fuel pricing mechanism, which they claim has inflicted losses exceeding Rs104 billion on the downstream petroleum industry.

Federal Minister for Petroleum has called the high-level meeting on Tuesday, bringing together chief executive officers of major oil refineries and OMCs to discuss the industry’s grievances and explore possible solutions. The meeting follows strong protests from industry representatives who argue that recent government decisions have significantly undermined the financial stability of the sector.

According to an official notification issued by the Petroleum Division, the meeting will focus on the impact of the latest fuel price adjustments and concerns regarding the pricing formula adopted by the government.

Industry Raises Alarm Over Massive Financial Impact

The Oil Companies Advisory Council (OCAC), representing refineries and OMCs, formally approached the petroleum minister seeking urgent intervention after the government reduced petrol and diesel prices in response to declining international crude oil prices following easing geopolitical tensions and the reported Iran-US peace agreement.

In a detailed communication to the ministry, OCAC stated that the latest reduction in petroleum product prices was implemented through a revised pricing mechanism without adequate consultation with industry stakeholders. The council argued that the move has caused significant financial exposure for companies holding large fuel inventories purchased at higher prices.

Industry estimates indicate that oil companies and refineries currently maintain approximately 505,000 metric tonnes of petrol (motor spirit) and 655,000 metric tonnes of high-speed diesel in stock. The sudden price cut has led to a sharp decline in the value of these inventories, resulting in immediate losses estimated at around Rs104 billion.

OCAC emphasized that the losses represent a substantial erosion of working capital, liquidity, and shareholder value, warning that the financial damage stems not from business inefficiencies but from a policy decision imposed on the sector.

Call for Consultative Pricing Mechanism

The industry body expressed concern over what it described as repeated unilateral interventions in fuel pricing, arguing that such decisions are creating uncertainty and threatening the long-term viability of Pakistan’s downstream petroleum industry.

OCAC urged the government to adopt a transparent and consultative pricing framework that takes into account industry realities, including inventory procurement cycles, financing costs, and mandatory stockholding requirements.

The council noted that industry stakeholders have repeatedly highlighted the financial consequences of abrupt pricing decisions over the past several months. Despite multiple representations and recommendations submitted to policymakers, it claimed that key pricing decisions continue to be made without meaningful engagement with the companies responsible for maintaining the country’s fuel supply chain.

Industry Highlights Contributions to Energy Security

The oil sector also reminded the government of the support provided by refineries and OMCs during periods of market volatility and heightened international oil prices.

According to OCAC, petroleum companies invested significant financial resources to ensure uninterrupted fuel supplies across the country despite increasing procurement costs and mounting working capital pressures.

Oil marketing companies maintained nationwide fuel distribution networks and preserved mandatory strategic fuel reserves, while refineries contributed to broader national efforts by limiting diesel margins, supplying kerosene and jet fuel at controlled rates for strategic and religious operations, and helping reduce price differential claims through financial contributions exceeding Rs7 billion.

Industry representatives argued that they had repeatedly warned policymakers that any inventory gains recorded during periods of rising international oil prices would eventually reverse when global markets stabilized.

Mounting Financial Pressures

Beyond the latest inventory-related losses, the petroleum industry says it is already facing multiple financial challenges. OMC margins have reportedly remained unchanged since September 2023 despite persistent inflation, rising operational expenses, increased compliance costs, and expanding regulatory requirements.

The sector is also dealing with unresolved price differential claims amounting to approximately Rs66.7 billion, alongside growing obligations related to mandatory fuel storage and strategic stock maintenance.

Industry leaders warn that the accumulation of these pressures is making business operations increasingly difficult and could discourage future investment in the sector.

Investor Confidence at Risk

OCAC cautioned that continued policy uncertainty could have broader implications for Pakistan’s investment climate. The petroleum sector has historically attracted substantial domestic and foreign investment, with international energy companies committing billions of rupees to fuel storage facilities, logistics infrastructure, and retail networks.

According to the council, these investments were made on the assumption of a stable and predictable regulatory environment. Frequent and abrupt policy interventions, however, risk undermining investor confidence and could ultimately lead to reduced investment, market exits by weaker players, and financial distress across the industry.

The council warned that such developments would come at a time when Pakistan is actively seeking foreign direct investment and economic stability.

Government-Industry Talks Expected

The emergency meeting between the petroleum minister and industry leaders is expected to address the concerns raised by OCAC and explore mechanisms to mitigate losses while ensuring fuel affordability for consumers.