OCAC for early reimbursement of ‘subsidy’ to oil companies

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As the Petroleum Division has agreed to a supplementary grant for payment of price differential claim (PDC) to oil market companies and refineries to ward off the possible shortage of petroleum products, the Oil Companies Advisory Council (OCAC) has called for formulating a fortnightly mechanism for the early reimbursement of “funded subsidy”.

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 said that the government approve the mechanism agreed upon for “funded subsidy” for payment of 95 per cent of PDCs within the 10 working days.

It said that the rest of the 5 per cent payment should be released after the internal verification by the regulator.

The OCAC 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.

The Petroleum Division has submitted a summary to the Economic Coordination Committee of the cabinet for approval of the payment mechanism.

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.

Energy analyst Wajeeh Sajid 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 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.

The Petroleum Division and oil companies have worked out a mechanism for PDC payment within 14 working days. The Oil and Gas Regulatory Authority has proposed an amount of Rs20 billion for the PDC payment, initially.

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