The Economic Coordination Committee (ECC) of the cabinet has approved a Rs20 billion subsidy for oil marketing companies (OMCs) and refineries to ensure the uninterrupted supply of petroleum products in wake of soaring global prices of the commodity.
The ECC approved the subsidy to the OMCs and four refineries at a meeting chaired by Finance Minister Shaukat Tarin.
The Ministry of Energy (Petroleum Division) had submitted the summary on reimbursement of price differential claims (PDCs) of OMCs and refineries, in line with the PM relief package of reduction in the consumer prices of motor spirit and diesel by Rs10 per litre.
The price differential claim would be paid to the oil marketing companies and refineries by the government as a subsidy to avert any shortage of petroleum products in the market.
The ECC approved a special PDC disbursement mechanism to pay the PDC speedily within 15 days with the opening of a special assignment account with.
Earlier, the Oil Companies Advisory Council (OCAC) had called for formulating a fortnightly mechanism for the early reimbursement of the “funded subsidy” agreed by the government.
The oil sector had cautioned of the oil crisis in the country in the wake of the lowering of the price of petroleum products by Rs10 per litre without a backup plan for making out to the losses of the oil companies.
In a letter, the OCAC had demanded for payment of 95 per cent of PDCs within the 10 working days. It had said that the rest of the 5 per cent payment should be released after the internal verification by the regulator.
The OCAC had said that the management of cash flows is critically challenging for the oil companies owing to “insufficient margins”, rupee-dollar parity, constraint financing facilities, circular debt, outstanding PDCs since 2004 and other external factors such as geopolitical situation, high premiums etc. It said that the sooner the decision is approved and implemented, the quicker will be the redressal of already constricted working capital constraints faced by the oil industry.
Sources told Narratives that on the backing of the State Bank of Pakistan, leading banks have agreed to increase the credit limit of major oil marketing companies including the PSO, Shell, Total-PARCO etc and four refineries.
Earlier, energy analyst Wajeeh Sajid had said that oil prices were constantly going up because of the international geopolitical situation necessitated by the Russia-Ukraine conflict and it was increasingly becoming difficult for oil companies to absorb the shock. She had said that currently, the government may have the fiscal space to provide a subsidy to the oil companies, if the international prices go up further, the further subsidy will be a challenge for the government in the long run.
