Sources said that proposed investment plan under the criteria would be based on estimated business volumes with provisions to make cumulative investment of Rs 6 billion or more, in the infrastructure and transport development (exclusive of the investment on retail development plan) with a minimum upfront equity of Rs 3 billion in the shape of paid-up capital, at the time of the application.
The summary was also circulated to the Ministries of Finance, Commerce, Planning and Development Division, Securities and Exchange Commission of Pakistan (SECP) and Oil and Gas Regulatory Authority (OGRA) for their views and comments.
Sources further stated that under the proposed new marketing licence criteria, the prospective company would apply for marketing licence as per the provisions of the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules, 2016. The prospective company will provide three-year plan with application that included; (i) marketing plan highlighting the proposed business volumes for retail and non-retail product on regional basis along with firm supply arrangements with local refineries and import arrangements for estimated volumes over and above the supplies to be arranged from local refineries; (ii) retail development plan specifying the cities/locations where the retail sites are to be set up covering both urban/rural areas. However, the prospective company shall be obligated to set up minimum 10% of its expected retail population to service remote and far-flung areas with minimum facilities. In accordance with specific regulations in the matter to be declared by OGRA; (iii) transport plan will envisage different modes to be used with the commitment that all applicable petroleum products safety and transport standards will be strictly complied with. Any investment in the transport infrastructure/fleet will be appreciated; (iv) infrastructure development plan will be based on province-wise regional demand with details of installations /storages /terminals at different locations/depots and capacities corresponding to the business strategy.
However, the new company must construct minimum storage of 20,000 MT each of HSD/MS or storage equivalent to 20 days of annual average sales of the first year, whichever is higher, prior to beginning sales in the country. The company dependent on import sourcing shall create adequate storage/terminal facilities at ports.
The investment plan will be based on estimated business volumes and associated economics with provisions to make cumulative investment of Rs 6 billion or more, in the infrastructure and transport development [exclusive of the investment on retail development plan) with a minimum upfront equity of Rs 3 billion in the shape of paid-up capital, at the time of the application. New company shall be entitled to procure, store and market/sell non-retail petroleum products once they are granted marketing licence by the Authority. However, they have to construct mandatory storages equivalent to 20 days demand for those products in accordance with their marketing and infrastructure plans.
Petroleum Division also stated that existing criteria for setting up oil marketing companies (OMCs) was approved by the ECC in October 25, 2003 with the basic purpose to attract investment, create healthy competition and achieve efficiencies in the oil marketing and distribution sectors. Under the criteria to date, 53 new companies were granted marketing licences while the total number of companies having marketing licences presently stands at 59. Such a large number of OMCs are more than sufficient for ensuring fair competition and achieving efficiencies in the oil marketing sector.
However, effective monitoring of such a large number of OMCs by Oil and Gas Regulatory Authority (OGRA) is likely to be problematic due to capacity constraints of the Authority.
Additionally, a period of almost 15 years has elapsed since the inception of the criteria, whereas the exchange rate in terms of dollar has doubled from Rs 57 per dollar in 2002-03 to Rs 133 per dollar. Likewise, average storage construction cost per tonne has increased from about Rs 50,000 in 2003 to more than Rs 100,000 (including land costs) and this warrants a corresponding increase in the investment requirements for the new marketing companies as per the provisions of the criteria. It is, therefore, appropriate if the condition of investment in infrastructure equivalent to Rs 500 million is increased/ revised. In addition, some practical insights have been gained through the experience in the last 15 years.
Accordingly, the criteria for establishment of new oil marketing companies need to be revised to cover some of its weaknesses as well as to introduce some new aspects in it. Moreover, the existing criteria are silent about existing licensees; therefore, some of the provisions for the existing OMCs may also be considered for incorporation in the new criteria in order to ensure across the board treatment with regard to investment and infrastructure development.