The Inland Freight Equalization Margin (IFEM), which has damaged the cash flow of oil markets, has further lowered the operating capacity of the local oil industry, raising concerns among the Oil Companies Advisory Council (OCAC) about the ability to sustain the petroleum stockpile.
The OCAC expressed concerns on the financial situation of the oil industry in a letter to the state minister for Petroleum Division.
The industry might not be able to keep the 20-day motor fuel stock cover at the current borrowing rate and cost of goods.
OCAC Warns Industry Fuel Stock Availability
According to the letter, the industry’s financial difficulties have increased and made it impossible for it to function due to high credit letter confirmation fees and high demurrage prices.
It asked the government to incorporate demurrage expenses and LC confirmation charges in motor gasoline pricing in order to keep the business afloat, as well as to effectively withdraw the negative IFEM in the following price hike on April 1, 2023.
The Oil Marketing Companies (OMCs) are allegedly effectively reimbursing the consumer for modifications that are recovered by the OMCs after a protracted period of time, according to the OCAC, rather than being compensated for goods charges incurred, which is the genuine goal of IFEM.
Because OMCs have been funding an indirect subsidy to consumers for more than six months, the goal is to persuade the government to “declutter IFEM” by deleting unrelated adjustments and that negative IFEM be discontinued in the upcoming price change.
The failure of the oil business to cover the cost of the required motor fuel stock is also covered in the letter.
In order for the OMCs’ margin to equal the dealer’s margin of Rs. 7, the sector demanded that the government quickly enhance it to that level.
Regarding demurrage fees, the sector claims in the letter that the procedure for LC confirmation is upsetting berthing plans and driving up demurrage fees.
The OCAC suggested to the government that these be assessed on an individual basis, compensated as a pass-through cost, and included as a line item in fuel pricing.
In regards to the LC confirmation fees, the letter warned the minister that the country’s risk has increased due to the current economic climate, and that this has led to high LC confirmation fees, endangering the sustainability of the sector.
The business community urged the government to include LC confirmation fees as a separate line item to the price of motor fuel.
To read our blog on “PSO on the verge of failure, with fuel supply disruption possible,” click here.
