The Economic Coordination Committee (ECC) of the Cabinet Tuesday approved an allocation of additional Rs11.73 billion as supplementary grant to meet the expenditure on payment of Price Differential Claims (PDCs) up to 31st March 2022 to Oil Marketing Companies (OMCs) and refineries to keep the petroleum prices unchanged.

In a summary to ECC, Petroleum Division stated that state owned Pakistan State Oil (PSO) and other OMCs have shown concerns over mechanism of payment of PDC submitted in its earlier summary to ECC and requested that the PDC will be applicable on sale of petroleum products rather than on procurement of products. The details of PDC disbursed to OMCs/refineries shall be submitted by the Oil and Gas Regulatory Authority (OGRA) to the ECC through the Petroleum Division along with estimated demand of the PDC for the next fortnight.

The Petroleum Division worked out that international oil prices have further increased during current fortnight (Arab Light Crude Oil price reached to $118/bbl), thereby, PDC has been estimated by the Ogra to Rs31.73 billion (Rs2.60 billion for November 1-4, 2021), and Rs29.13 for March 2022) as against allocated sum of Rs20 billion. Therefore, there is a need of additional Rs11.73 billion allocation through supplementary grant.

The PSO has recommended that PDC may be reimbursed on products sale rather than procurement. The Ogra has agreed with the PSO’s stance and recommended disbursement of the PDC on sales. The Ogra has further proposed that the details of PDC disbursed on OMCs/refineries shall be submitted by the Ogra to the ECC through the Petroleum Division along with an estimated demand of the PDC for the next fortnight. To address PSO and other OMCs concerns there is need to amend the PDC payment mechanism.

The ECC of the Cabinet considered the summary submitted by Petroleum Division on March 7, 2022 which approved the procedure for making PDC payment to the OMCs and refineries. The ECC approved a special PDC payment procedure to pay the PDC speedily. The ECC also approved opening of a special assignment account with PSO for drawl of PDC by PSO for its own claims and issuance of PDC claims to the other OMCs/refineries. The ECC has also approved, initially a provision of Rs20 billion through a supplementary grant for making payments pertaining to the period of November (1-4) 2021 and current month, swiftly to OMCs/refineries to avoid shortage of petroleum products in the country with the approval that proposals for further supplementary grant, if any, will be submitted to the ECC, subsequently in accordance with the anticipated requirements, as and when required.

In this regard, the PSO has informed that the PDC is generated through sale of petroleum products therefore; OMCs will be at loss if PDC reimbursement is based on procurement rather than sales. Private OMCs may shy away from the market and stop selling products in market. The PSO is of the opinion that the consumers will only realise the benefit of the PDC when the product is sold by the OMCs and mere procurement will not be sufficient.

Earlier, on March 7, 2022, the ECC decided to add words “their external auditors” before the words “Chartered Accountant” on Petroleum Division’s summary regarding reimbursement of PDC of OMCs.

On March 1, 2022, the Oil Companies Advisory Council (OCAC) in a letter to the Petroleum Division stated, “In order to avoid imminent shortage of petroleum products, we request that the PDC element should be removed by revising petroleum product prices immediately or alternatively a subsidy mechanism be founded”.

On February 28, 2022, Prime Minister Khan had announced that the government would not raise the prices of petroleum products till June 30, 2022 and absorb the impact of surge in oil prices internationally because of Russia and Ukraine war.

The story was originally published in Business Recorder on March 16, 2022.