Urgent Intervention Sought as Pakistan’s Oil Marketing Companies Face PKR 91 Billion in Losses

ISLAMABAD: The Prime Minister’s Office Special Investment Facilitation Council (SIFC) Secretariat has sought views/comments from the government bodies on an urgent call for intervention to address critical challenges faced by Pakistan’s oil industry, which is grappling with PKR 91 billion in financial losses.

This follows a detailed letter from the Oil Marketing Association of Pakistan (OMAP), highlighting significant financial hurdles impacting the sector’s operational efficiency and growth.

In a memorandum dated June 7, 2024, Abdul Karim Lashari, SME Specialist at SIFC, referenced a self-explanatory letter from OMAP (No. 289/OMAP/2024) dated May 8, 2024. The letter, signed by the Chairman of OMAP, outlines several structural problems affecting the industry’s cash flow and financial stability. These issues include:

Unrecovered Exchange Losses: The oil industry has accrued PKR 26 billion in unrecovered exchange losses due to flaws in the foreign exchange gain/loss recovery mechanism. Despite acknowledgment from the Ministry of Energy and the Oil & Gas Regulatory Authority (OGRA), the reimbursement process remains slow.

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Sales Tax Reduction Impact: The reduction of sales tax on petroleum products to 0% has resulted in PKR 65 billion in held funds, severely affecting cash flows. The refunds are delayed by bureaucratic processes, further straining the industry’s finances.

IFEM Disruption: Funds are held up in the Inland Freight Equalization Margin (IFEM), with significant delays in audits stretching over eight years. This has led to a substantial decrease in the value of funds received, adversely impacting the industry’s cash flow.

In light of these issues, the SIFC Secretariat has requested views and comments from key government bodies, including the Ministry of Energy (Petroleum Division), Oil and Gas Regulatory Authority (OGRA), and the Federal Board of Revenue (FBR), by June 12, 2024.

In his appeal, the OMAP Chairman emphasized that these financial challenges are not only affecting the operational efficiency of oil marketing companies but also posing a risk to the survival of the entire industry. The high mark-up costs on trapped funds and the reluctance of government authorities to address these issues are hindering both local and foreign investments in Pakistan’s energy sector.

The memorandum also highlights the importance of resolving these challenges to create a sustainable business environment and boost investor confidence. OMAP has expressed its willingness to engage in discussions with government officials to provide further information and collaborate on finding solutions.

It is pertinent to mention that the urgent intervention requested by the SIFC Secretariat aims to facilitate the recovery of the oil industry and ensure its contribution to Pakistan’s economic development remains robust and sustainable.

The OMAP’s letter underscores the necessity for immediate action to rectify these financial imbalances. The oil marketing companies (OMCs) are experiencing significant operational difficulties due to unrecovered exchange losses, delayed sales tax refunds, and funds held up in the IFEM. The total of PKR 91 billion in trapped funds is causing severe liquidity issues, impeding the sector’s growth and operational efficiency.

Given the critical role of the oil industry in Pakistan’s economy, resolving these financial issues is paramount. The government’s intervention is essential not only to safeguard the industry’s stability but also to encourage further investment, both local and foreign, in Pakistan’s energy sector. The resolution of these challenges will be a crucial step towards ensuring the industry’s continued contribution to the country’s economic development.