The Oil Companies Advisory Council (OCAC) has demanded either the withdrawal of the recent oil price cut announced by Prime Minister Imran Khan or the payment of outstanding dues to eliminate the Price Deferential Claims (PDC) that are adding to the oil industry’s financial difficulties.
OCAC receives PDC, a type of government subsidy claimed by oil companies in exchange for lowering consumer prices, which is replenished by the State.
With higher international oil prices and the Prime Minister’s announcement of a subsidy, the Secretary-General of the Oil Companies Advisory Council, Syed Nazir Abbas Zaidi, wrote a letter to the Secretary Ministry of Energy, expressing his displeasure with the increasing Price Deferential Claim, which has been increasing day by day.
He wrote that the Price Differential Claim (PDC) is a source of concern for the oil industry because it was imposed despite the industry’s critical state.
The council had requested the Ministry’s assistance in avoiding further PDC imposition because it would have an unsustainable impact on the industry’s cash flows, resulting in a catastrophic disruption in the country’s petroleum supply chain
He stated that the current PDC on high-speed diesel (HSD) will generate receivables of around Rs. 1 billion during the first two weeks of March 2022.
This will add to the previous receivables pertaining to 2004-2008, thereby exacerbating the industry’s financial difficulties.
He went on to say that the industry is already facing severe financing issues as a result of rising international prices, depreciation of the Pakistani rupee, high import premiums, and Rs 1.3 trillion in circular debt.
To ensure uninterrupted supplies and manage working capital requirements, the industry has already requested assistance from the State Bank of Pakistan (SBP) in increasing their credit/financing limits.
On February 28, 2022, a meeting was held in this regard, and sensing the gravity of the situation, the Governor SBP formed a committee of leading banks to provide their proposal in this matter as soon as possible.
Zaidi wrote, “Additionally, the decision to maintain prices at the current level till July 2022, will lead to a further buildup of PDC for HSD as the international prices are on the rise due to the current geopolitical situation.
If the local consumer prices are not aligned with the international market and the PDC regime is continued, the industry will not be able to sustain and this will lead to a severe supply chain disruption during the upcoming harvesting season resulting in a crisis of petroleum products shortage similar to one faced in June 2020.
Further, it will have a serious adverse impact on the business continuity of several companies in the industry.”
To avoid an impending shortage of petroleum products, Zaidi requested that the PDC element be removed by immediately revising petroleum product prices or the formulation of a subsidy mechanism.
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