Oil marketing companies struggling for increase


Dec 23 - 29, 2002

Oil Marketing Companies (OMCs) are constantly pressing the demand for an in crease in their margin which what they usually said is the lowest in the region.

Previously, the OMCs used to operate in a very controlled environment where the companies earn revenue only through fixed distribution margins. The government under pressure from multilateral donor agencies started gradual deregulation of the oil sector.

Furnace oil was deregulated in the first phase and recently HSD has also been deregulated which allows the OMCs to import HSD and fix prices of their products but prices must be the same across the country on intra company basis. While the margin on other POL products has been raised to 3.5 per cent from previous 3 percent rate of margin across the board. The 3.5 per cent are also the maximum benchmark for charging margins on HSD.

The increase in margins has significantly improved the bottom line of the companies. A leading oil marketing company has conveyed recently that they are engaging the government to further increase margins to 1 per cent as was promised in 1994 by the government.

While PAGE questioned whether the increase in margin would affect the price level of POL products which are already on the higher side and the consumers are compelled to shift from oil to gas due to cost effectiveness of the natural gas. The reply by a senior official of the Oil Company however retorted that it is not the margin of the oil companies but the government levies instrumental in increasing the oil prices in Pakistan.

Currently, there are three leading oil distribution companies which including Pakistan State Oil (PSO), Shell Pakistan and Caltex responsible for the supply and marketing of POL products in Pakistan. These companies operate on fixed distribution margins for all products except HSD, Furnace oil and Lubes. The local oil refineries and other OMCs such as the French multinational Total working in collaboration with PARCO are also involved in distribution.


Pakistan produces around 63,000 barrels per day against the total consumption of 359,000 barrels per day of the POL products. This means that rest of the demand is met through imports, which cost heavily on the economy. Pakistan has to spend $3.326 billion on annual oil import.

The present government has chalked out future road map of the oil sector on the following lines, which includes:

1. Increase competition, 2. Further deregulate crude oil import by refineries, 3. Remove congestion of ports, 4. Improve specifications, 5. Expand pipelines and storage infrastructure, 6. design national policy for vehicular fuels, and 7. Control smuggling of petroleum products into Pakistan.

In order to reduce import burden, the government has encouraged private sector both local and foreign investors to develop domestic production capacity of oil within the country.

The transport sector is so far the largest consumer of oil using 47.3 per cent of the total energy consumption. While the power sector with 37.2 per cent holds second position and others include 9.5 per cent by industry, two per cent by domestic, 1.3 per cent agriculture and 2.7 per cent other government sectors.

In the gas power sector, the 37.7 per cent utilization of the total supply stands on top followed by fertilizer 21 per cent, domestic 18 per cent, general industry 18.9 per cent, cement 1.3 per cent, commercial 2.8 per cent and CNG 0.7 per cent.

Pakistan's gas demand stands at 3,100 million cubic feet per day while the supply is of 2,600 million cubic feet with a deficit of 500 million cubic feet per day. In order to meet future demands, the transmission and distribution system in the gas sector is being upgraded to carry 850 mmcfd by investing $400 million up to 2003.

Commercial use of energy is increasing by 4 per cent in Pakistan and this sector alone generates Rs60 billion in taxes which constitute 12 per cent of the federal tax receipts. Out of the total energy consumption, 30 per cent is shared by gas sector, which has the capacity to increase, by 50 cent in near future.

Consequently, while the demand pressure on oil sector will certainly come down but the energy management demands for sufficient gas and coal supplies in the industry and other oil consuming sectors.

The growing demand for natural gas would ask for more production. In order to meet the future demands. So far $204 million investment made on exploration and $802million on development and production of gas during last three years while an investment plan is in hand to invest another $400 million on transmission and distribution of the gas system.

It is indeed a matter of pride that Pakistan is moving into a direction where it is getting closer to the maximum use of locally produced natural gas. It is however pertinent to remember that the real sense of happiness would prevail among the people of this country when the prices of locally produced gas are kept affordable and in conformity to the per capita income of the masses.