Computing petroleum products’ prices on a fortnightly basis by the Oil and Gas Regulatory Authority (Ogra) has diminished the profit margin, sparking concerns among the oil marketing companies (OMCs), reports WealthPK. The Ogra revises fuel prices twice a month in consultation with the stakeholders. The new prices are set on the 15th and the last day of each month. Speaking to WealthPK, Munir A. Temuri, Assistant General Manager of Attock Refinery Limited, said, "The prices set by the Ogra mostly remain in effect for a fortnight. Previously, the Ogra computed the rates of petroleum products on the basis of exchange rate but currently it uses the 15-day average exchange rate for the purpose. This methodology affects the company’s profitability and operations."

Source: Trading Economics

The above graph shows fluctuations in the value of the Pakistani rupee against the US dollar. As the value of the rupee fluctuates daily, determining the rates of petroleum products on the 15-day average exchange rate is diminishing the oil industry’s profit margin. Temuri pointed out that the Pakistani rupee was continuously devaluating, raising the operational costs, electricity charges, interest rates, labour costs, franchise fees of oil marketing companies, and Kibor rates. He further explained that the increase in operational costs decreased the profit margin set by the government for the petroleum sector and it was crucial to increase the profit margin for smooth functioning of the oil sector. ‘‘To minimize the exchange rate exposure for the oil industry, the oil pricing must be set at the latest exchange rates at the time of revising the fuel pricing,” he suggested. Speaking to WealthPK, Syeda Ameer Batool, Secretary of Pepco, said the sales of petrol stations had lowered to 50 percent due to the availability of smuggled petroleum products at the lower rates.

"The decrease in sales further reduces the profit margin of fuel stations at a time when there is a demand for an increase in the profit margins by the oil industry. This damaging trend is not only undermining the oil industry but also carries serious repercussions for the overall economy," she said. She lamented that the availability of smuggled petroleum products had prevented the refineries from investing billions of dollars in upgradation, which was crucial for availability of quality petroleum products. She emphasized the need to curtail smuggling to pave the way for boosting the confidence of the oil industry to invest in the upgradation of refineries. She further explained that the dependency on exchange rates had made Pakistan’s fuel prices highly susceptible to fluctuations in the international currency market. As the Pak rupee shows a devaluating trend, usually the last-day exchange rate is higher than the average exchange rate and the prices are set below the prevailing exchange rate, she added.

Credit: Independent News Pakistan