ISLAMABAD: The Petroleum Division has notified substantially higher price differential claim (PDC) payable to oil companies and refineries for the second half of current fiscal year owing to continuously rising global prices and domestic price freeze.

In a notification, the Petroleum Division has fixed the PDC at Rs47.02 for payment on sale of every litre of petrol by the government out of federal budget to the oil companies and refineries between May 16 and 31.

Likewise, the government would also pay Rs86.71 per litre to the OMCs and refineries on sale of high-speed diesel during the current fortnight, according to the notification. Similarly, the PDC on light diesel has been fixed at Rs67.84 per litre while it is notified at Rs51.83 per litre for kerosene.

Based on these notified PDC rates, the Oil & Gas Regulatory Authority (Ogra) has estimated total payments out of federal budget to subsidise petroleum products at Rs119bn for the whole month of May (including Rs52bn for the actual cost in the first fortnight) but actual expenditure would depend on overall sales during the period.

Although, the government has been making payments, through Ogra and Pakistan State Oil, to OMCs and refineries at the end of each fortnight, the Oil Companies Advisory Council (OCAC), the primary representative of Pakistan’s downstream oil industry, has told the government that the mechanism was unsustainable.

In a statement, the OCAC said the cumulative sale of HSD for the first fortnight of May was 363,667 tonnes, whereas the sale of petrol stood at 363,210 tonnes. Expressing his concerns, Waqar Irshad Siddiqui, the OCAC chairman said “despite the havoc that has been created around price-hike translating into speculative fuel buying”, the sales figures for April and the first fortnight of May represented a clear commitment of the OMCs by fulfilling robust demand due to the ongoing harvesting season.

He said the PDC payments were being processed by the government in a timely manner but even then it was further increasing the financial constraints on enabling sustained oil imports to fulfil the overall fuel demand.

With monthly sales of 919,442 tonnes for HSD in April, registering an increase of about 17pc compared to the same period last year (April 2021), and with appreciable sales numbers for the first fortnight of May, he said the downstream oil industry is positive towards fulfilling country’s fuel needs with the support of the concerned authorities and ministries for the prosperity of the country.

Faced with political challenges, former prime minister Imran Khan on Feb 28 announced a Rs10 per litre cut and a put a price cap on petroleum prices for four months amid the rising global trend that has led to the creation of price differential claims. Unfortunately, all these workings were based on $85-95 per barrel and exchange rate at Rs178. The situation has changed as prices went beyond $120 and the exchange rate over Rs195.

The government has, so far, cleared more than Rs100bn worth of PDCs for March and April through supplementary grants for onward payments to OMCs and refineries. On Monday, the ECC approved another Rs55.48bn for immediate reimbursement at cheaper rates of petroleum products than their costs for first half of May.

The additional grant was approved despite Finance Division’s protest that “maintaining fuel prices at a subsidised rate is consistently increasing fiscal and current account deficits and putting pressure on foreign exchange reserves”. Besides, it insisted that the situation was creating stress on the supply chain of petroleum products, which required “immediate reconsideration of the policy of price subsidy and also resumption of recovery of petroleum development levy and sales tax”.

The price differential is to be paid to the OMCs/refineries by the government as a subsidy in the wake of decision to keep the petroleum products’ prices fixed at the level notified on March 1, 2022.

Published in Dawn, May 18th, 2022