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| Oil industry seeks increase in margins |
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Tuesday, January 06, 2009
By By Saad Hasan
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KARACHI: The government is under increasing pressure to help improve revenues of oil marketing companies (OMCs) and refineries following last weeks violent protests against power outages and fuel shortage, industry people told The News on Monday.
The oil industry has sought increase in its margin after international oil price tumbled rock bottom, eroding the profitability of OMCs and refineries. OMCs have proposed Rs1.46 per litre margin on sale of petroleum products, an official close of the discussions said. Oil refineries also want a fixed refining margin of $6-7 per barrel.
The present margin of OMCs is close to Rs1.13 per litre on sale of diesel and 0.72 paisa on petrol. Refining margins, the difference between crude oil and petroleum products, have turned negative.
All the marketing companies and refineries have posted steep losses in first quarter (Jul-Sep) of fiscal 2008-09 as the depreciating rupee and increasing government debt compounded the impact of oil price slump. While subsidies on petroleum products have been phased out, the government still owes billions of rupees to oil industry under the head of fuel oil purchases for power production.
The Pakistan State Oil, the major supplier of fuel oil to thermal power stations, is waiting for weeks for government to clear its debt of around Rs73 billion. This is actually the amount which government has to arrange for independent power producers, which buy fuel from PSO.
As a consequence, the persistent debt has made it difficult for PSO to clear close to Rs60 bills of refineries especially Pak-Arab Refinery (Parco).The ruling Pakistan Peoples Party (PPP) has been critical of the windfall profitability of the oil industry in past years and it has also moved to limit the profits of refineries since coming to power. In August, it reduced the deemed duty for refineries to 7.5 percent from 10pc on sale of diesel.
The deemed duty was part of the protectionist oil pricing regime introduced back in 2002 whereby a 10pc custom duty was imposed on import of diesel while same was allowed to refineries as part of their revenues.
Angry protestors took to streets in parts of Punjab last week after gas supplies to industries and power plants dropped, causing job losses to daily wagers and incessant electricity breakdowns. Gas shortfall has widened in last few years, increasing countrys reliance on imported oil.
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