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OMCs to propose new profit margin mechanism

* OMCs oppose possible move to freeze margin
* Profit margins of OMCs were fixed when oil prices were low

By Zafar Bhutta

ISLAMABAD: The government has asked the Oil Marketing Companies (OMCs) to submit proposals for setting up new mechanism for profit margin in the proposed oil pricing formula, sources told Daily Times Thursday.

While on the other hand, the OMCs have opposed the possible move by government to freeze their margin.

Sources said that petroleum ministry officials held a meeting with representatives of the OMCs to hold discussion on their margin.

The government believes that the profit margins of OMCs were fixed when the oil prices were low and the gains of these companies were also less, however the rising oil prices in the international market have caused increase in the margin of OMCs.

Finance managers are of the view that there is a need to rationalise profit margins to save the consumers as well as the national exchequer from losses.

OMCs representatives held meeting with secretary petroleum, Zafar Mahmood who floated the proposal before them to freeze their margins in the current scenario when the oil prices were touching record high.

However, the companies’ representatives rejected the proposal and it was decided that another meeting would be held next week.

In the next meeting, proposal would be submitted by the OMCs representatives on the issue of margin, sources added.

Government wants to maintain of OMCs margin at 3.5 percent but intends to change the basis of its determination that will freeze the margin of OMCs. But OMCs are not in favour of it and therefore the meeting remained inclusive.

By doing so, government wants to stabilize oil prices on one side and reduce the burden of the oil subsidy on the exchequer also, sources said.

OMCs are of the view that their margins have already been disturbed due to huge recoveries of prices differential claims. Government had arranged over Rs 45 billion price differential claims from local banks and these companies claim that they also paid Rs 5.4 billion financial charges to these banks.

Government is still to pay Rs 72 billion differential claims to the OMCs that would be cleared by next month. Finance Ministry has approved two tranches of Rs 35 billion each as differential claims to OMCs and oil refineries.

Government had allocated Rs 140 billion subsidy amount on petroleum products to secure the consumers from higher oil prices in the international market for the upcoming financial year 2008-09.

“But the said subsidy for POL products would be available till December 2008,” official said. Currently, the government is giving a subsidy of Rs 7.15 on petrol, Rs 4.37 on HOBC, Rs 44.11 on kerosene and Rs 33.65 on light diesel oil and has capped the prices of the POL till June 30 to off set the affects of the soaring POL prices for its consumers.

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