OMCs may disrupt oil supplies in Pakistan

ISLAMABAD — The Oil Marketing Companies (OMCs) have demanded of the Pakistan government to pay Rs19 billion owed to them as compensation for putting a freeze on oil prices despite rising international market. They have threatened to disrupt oil supplies in the country if the payment was delayed, an official concerned conceded.

By From A Correspondent

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Published: Thu 10 Aug 2006, 10:06 AM

Last updated: Sat 4 Apr 2015, 2:10 PM

The move is seen by the government as a pressure tactic to pre-empt implementation of a recommendation of the National Accountability Bureau (NAB) that seeks compulsory audit of all claims the government is required to pay to the oil marketing companies and refineries on account of price differential.

The issue emerged a couple of weeks ago when the NAB completed its comprehensive investigations into the oil pricing mechanism of the last years and found serious flaws with the system. The NAB has submitted its report to the Prime Minister and has concluded that it was not proper on behalf of the ministries of petroleum and finance to make payments to the companies without prior audit, officials said who would not disclose further details of the findings.

"The OMCs have started defaulting on payment to refineries due to reaching their upper borrowing limits and as a result, refineries in return may start default on international crude payments leading to possible curtailing in refinery production, which may lead to disruption of fuel supply chain within the country," said a letter written to the Prime Minister by Oil Companies Advisory Committee (OCAC).

"The move is aimed at thwarting the audit recommended by the National Accountability Bureau (NAB) on oil pricing and it is now upto the Prime Minister to sustain the pressure", a NAB official said. The NAB has also raised questions about non-completion of two enquiries and special audits ordered by the petroleum minister on the subject.

The OCAC officials are currently holding meetings with adviser to the prime minister on finance and energy Dr Salman Shah and Mukhtar Ahmad respectively besides senior officials of prime minister secretariat and finance on a regular basis to resolve the issue. They said the non-payment of outstanding amount was putting extra burden of financial charges and consequently some of the foreign companies had put on hold their investment plans in Pakistan.

The OCAC — a cartel of oil companies that used to fix oil prices for more than five years under a controversial government decision and pricing mechanism — sought prime minister's personal and immediate intervention "for early release of Rs18.7 billion to avoid any disruption in diesel supplies that could impact the growing economy and citizens of Pakistan".

Following the submission of NAB report to the Prime Minister, the ministry of petroleum has declined to make any payment to the oil companies. An official of the OCAC said the secretary petroleum had expressed his complete inability to be of any help for the payment of outstanding dues. The ministry of finance was, however, preparing a case for approval from the cabinet to pass on the impact of rising international oil prices to the consumers, owing to its increasing financial burden.

The government decided last year to pay to the companies PDC for maintaining lower rates in the domestic market. The companies under the existing policy are entitled to charge oil prices at international rates, notwithstanding partial local production and imports from Gulf market which remains at least 20 per cent lower than London and New York rates.

By end of July 2006, the government owes the oil industry a sum of Rs18.5 billion which is increasing at a rate of Rs2.5-Rs3 billion every fortnight as international prices surge and a freeze on domestic prices for the last two-three months. Diesel with about nine million tonnes of annual consumption is the major product that could disrupt the normal life and is commonly known as "killer fuel" because of its higher import cost.

Interestingly, the NAB has accused the ministry of petroleum of creating a lobby to put pressure on the government through disinformation to shelve the ongoing inquiry into the non- transparent fixation of oil prices over the last five years.

"Ironically, the Ministry of Petroleum has created a lobby to pressurise the NAB to shelve the ongoing inquiry by disseminating misinformation regarding the intent of the inquiry," a written statement issued by the NAB said recently.

The major flaw in the oil fixation mechanism was that in June 2001 when the federal cabinet decided to transfer the oil price fixation function to the Oil Companies Advisory Committee (OCAC) subject to monitoring/regulating by the director general oil of the ministry of petroleum.

"However, the same was not followed by the ministry resulting in non-transparent fixation of oil prices as also observed by the World Bank Report 2003", said the NAB statement.

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