The dilemma of OMCS

Enterprise - - Snapshot -

The is­sue of cir­cu­lar debt is in the lime­light again. The ear­lier sus­pen­sion of seven Oil Mar­ket­ing Com­pa­nies by the Oil and Gas Reg­u­la­tory Au­thor­ity on the short­age of fuel at sta­tions and the on­go­ing dis­sat­is­fac­tion of the OMCs even on the raise in sell­ing mar­gins refers to the year-long bat­tle be­tween the OMCs and the govern­ment. The spi­ralling cir­cu­lar debt lies at the bot­tom of the con­tin­u­ing short­age of pe­tro­leum prod­ucts in the coun­try. The es­ti­mated cir­cu­lar debt as of May 31st, 2011, af­ter the pay­ments made to PSO and the ac­cu­mu­la­tions of April and May, stood at about Rs. 152, 516 mil­lion.

Askar, Has­col, Ad­more, OOTCL, Bakri, Byco and To­tal Parco were among the sus­pended OMCs. The com­pa­nies termed the sus­pen­sion as il­le­gal and HAS­COL filed a pe­ti­tion against the move which was soon an­nulled. Ac­cord­ing to oil in­dus­try sources, be­cause of the quag­mire of cir­cu­lar debt, all re­finer­ies and OMCs are un­der se­vere pres­sure and not able to ful­fill the ris­ing de­mands of fur­nace oil, petrol and diesel in the coun­try, which be­come the ba­sis for power cri­sis for in­dus­tries and the do­mes­tic sec­tor. Un­der cash-strapped cir­cum­stances, it be­comes dif­fi­cult for OMCs to con­clude new im­port deals as well, re­sult­ing in short­age of pe­tro­leum prod­ucts.

The en­ergy mix in Pak­istan is also blamed for the cri­sis, as oil has the largest share in over­all en­ergy con­sump­tion. The odd de­pen­dence on oil for gen­er­at­ing elec­tric­ity has forced the coun­try to bor­row more oil from in­ter­na­tional donors to stay vi­able in the in­ter­na­tional mar­ket and to avoid de­fault. Oil bor­row­ing at tonnes of vol­ume has cre­ated a sit­u­a­tion where the govern­ment owes bil­lions to the OMCs against the price dif­fer­en­tial claim that has ac­cu­mu­lated over a long pe­riod. The pe­tro­leum min­istry has been pres­sur­iz­ing the fi­nance min­istry to re­lease the piled up amount against the PDC to the OMCs so that they are able to main­tain oil re­serves and en­sure the fuel sup­ply chain un­der proper reg­u­la­tion.

Amidst the cir­cu­lar debt cri­sis, the govern­ment has taken ini­tia­tives to ease liq­uid­ity con­straints for OMCs by in­creas­ing profit mar­gins. For in­stance, the re­cent in­crease in mar­gins will im­prove Pak­istan State Oil’s an­nu­al­ized earn­ings by Rs. 4 to Rs. 5 per share.

But the OMCs are not con­sid­er­ing this step as suf­fi­cient enough to re­move their griev­ances. Ac­cord­ing to Kaleem Siddiqui, the CEO of Byco Pe­tro­leum, the govern­ment is per­sis­tent over the build­ing of stor­age tanks for main­tain­ing the fuel sup­ply chain, which re­quires bil­lions of ru­pees for in­vest­ment. Thus, as a fol­low­ing step, the govern­ment is also tak­ing part in es­tab­lish­ing oil stor­age ter­mi­nals with the as­sur­ance of their func­tion­ing in near time. The ar­range­ment of nec­es­sary funds for oil stor­age fa­cil­i­ties by the govern­ment may lessen the bur­den for OMCs, along with the liq­uid­ity ease. A reg­u­lated sup­ply of pe­tro­leum prod­ucts is sig­nif­i­cant for the re­vival of en­ergy based in­dus­trial sec­tor and har­mo­nized do­mes­tic life

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