Sources close to Petroleum Secretary told Business Recorder that sliding margin basis formula was tabled before the committee that met on Tuesday with Petroleum Minister Naveed Qamar in the chair. Oil refineries were of the view that sliding formula would result in varying margins of the refineries, OMCs, and the dealers, and therefore it was not acceptable to any of the parties.
"Minister for Petroleum and Natural Resources Syed Naveed Qamar has also rejected the formula after resistance from the oil industry," sources said, adding that the oil industry would present proposals within three days to the Petroleum Ministry.
Sources said that oil refineries and OMCs jointly rejected the "sliding margin basis formula", saying that it encompassed component that was instrumental in reducing margins of all stakeholders. "There is no bailout package in this formula," sources said, adding that the Minister agreed with oil industry and decided to withdraw the proposal. Sources said that oil industry and Minister had agreed to modify the existing oil pricing formula. Earlier, the refineries had requested to allow 10 percent guaranteed return on equity, but the government had conveyed that it was not ready to allow guaranteed return formula.
Sources added that oil refineries said during the meeting that at present the country was meeting 60 percent requirement of oil from imported sources, and refineries were providing 40 percent oil due to low refining, followed by the circular debt problem. Finance Secretary assured the meeting to resolve the issue of circular debt that had magnified the problems of the oil industry.
Petroleum Minister said that the government wanted to provide level playing field to all stakeholders and therefore would take all possible measures to resolve the issue on priority basis. He added that transparent mechanism of oil pricing was necessary so that common man could understand it without any ambiguity. The new proposed formula comprised (i) adoption of American Petroleum Management System (APMS) Standards for crude oil price instead of Gulf Market prices, (ii) removal of existing 7.5 percent deemed duty, (iii) no responsibility on government regarding foreign exchange losses on crude oil import, and (iv) no recovery of financial charges from government.
Sources said that refining industry was of the view that sliding margin basis formula would further add to their losses. The refining industry was already under financial burden and new proposed formula had not promised any bail out package for them, they added.