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Oil Marketing Firms Urge State Bank to Defend Against Currency Risks

Oil Marketing Companies (OMCs) are urging the central bank to protect against currency risks and propose a mechanism to reduce exchange losses in order to avoid a financial collapse in the sector.

The Oil Marketing Association of Pakistan (OMAP) wrote to the State Bank of Pakistan outlining the difficulties the sector is experiencing as a result of the current economic crisis, including a lack of dollars and a lack of LC openings.

The letter said:

Due to the current economic situation, LC opening issues, non-adjustment of foreign exchange losses on actual basis and extremely high cost of doing business has incapacitated the OMC business, already grappling for existence. OMCs are already constricted by restricting the price of motor fuels.

The OMCs expressed their displeasure in the letter, claiming that the government did not follow its own authorized price adjustment formula. As a result of these incorrect changes, the estimated sales volumes for the second week of February would result in billions of rupees in losses, as confirmed during the Oil and Gas Regulatory Authority-supervised product review meeting (OGRA).

The letter also stated that the agricultural season is expected to begin in the second week of March 2023, and that the industry will be unable to meet the increased demand if current constraining prices are maintained.

The OMAP emphasized that the continued suppression of oil prices over the past year is unsustainable and will harm the oil industry, which is already facing significant challenges.

It is also worth noting that the adjusted margin of Rs. 6 per liter has not been fully incorporated into the HSD price. As of now, Rs. 1 per liter of the revised OMCs’ margin on motor fuels, which was authorized by ECC after much anticipation in October 2022, remains unacknowledged.

 

Another important factor that must be kept in mind is the exchange rate difference and inflation rate difference between October 31, 2022 & February 18, 2023. Taking into account this prime factor, the OMC margin should be above Rs. 9/liter.

 

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