The government’s efforts to gain tighter control of the country’s oil supply are meeting stiff resistance from the oil marketing companies, who fear it will eat into their profits.

The Oil Companies Advisory Council (OCAC), which represents the OMCs in the country, issued a statement on Monday and opposed the government’s plans to buy oil through custom bonded warehouses.

The custom bonded warehouses will mean less equality of opportunity for the OMCs, a loss in sales tax revenue for the government, and a decrease in the space available to companies in Karachi’s Port Qasim for storage, it added.

The OCAC has also argued that the new policy could lead to disruption in the supply chain of oil in the country and lead to a deterioration of oil storage infrastructure and refineries in the country.

But what is the new government policy?

Firstly, it is important to understand how oil procurement works here. Pakistan usually buys oil from Arab and Gulf countries with long-term agreements with some spot purchases.

But it is not the Pakistan State Oil company that does the entire purchasing and distribution of the fuel in the country. The deregulation in place over the last two decades means that multiple OMCs are competing for a share of Pakistan’s oil consumer market.

This leads to two problems: the smaller OMCs have trouble finding oil to purchase in a market full of big players, leading to supply uncertainties. The second and bigger problem, according to sources, is that the companies that can find oil to buy often buy large quantities at lower prices but only declare part of their reserves, waiting to take advantage of a rise in international prices to sell the stock already bought.

Sources within the government say that the new measures are aimed at gaining more control over the oil supply to break the OMCs monopoly, prevent hoarding and bring certainty to the oil supply.

The government hopes to do this through custom-bonded warehouses. “This means that the international oil companies from where Pakistan usually buys oil will be allowed to have their own storage in the country,” sources said and added that essentially, the oil that the country will buy will already be in Pakistan, pending payment.

The international companies will then create a company that will sell oil to Pakistan on their behalf. The government is of the view that it will not only eliminate supply and procuring uncertainties but also mean that the OMCs will not need letters of credit with advance payment. “As an incentive for foreign companies for storing oil in Pakistan, they will be allowed to export the oil with OGRA approval.”