OCAC warns of “unfair” HSD imports and “huge” discounts by private OMCs

• The Oil Companies Advisory Committee wrote to the head of OGRA expressing concerns about the impact of these imports on the local oil industry

Islamabad: The Oil Companies Advisory Committee (OCAC) has called on the Oil and Gas Regulatory Authority (OGRA) to look into the unjustified high speed diesel (HSD) import practices of private oil marketing companies (OMCs) and scrutinize how the companies are offering oil at discounted prices that exceed their margins.

In a letter dated August 1, 2024 to OGRA Chairman Masroor Khan, OCAC raised urgent concerns about the impact of these imports on the local oil industry, titled “Urgent Action: Concerns about Unfair Market Practices at the Expense of the Oil Industry.”

OCAC stressed that HSD imports by private OMCs have soared from 15,000 metric tons per month to 40,000 metric tons per month, with the product being distributed through unfair means. Despite the fact that local refineries have surplus product and have rented additional warehouses, OGRA continues to approve these imports without accurately assessing the country’s needs, a situation exacerbated by cross-border movements.

The letter stressed that capital investment in OMCs should not allow unnecessary imports to the detriment of local industries. Such an approach is a departure from the practice of prioritizing refined products and puts pressure on Pakistan’s foreign exchange reserves.

“Infusion of capital and investments into oil marketing companies should not be at the expense of local industries by allowing unnecessary imports under various pretexts. This not only goes against the established practice of prioritizing ramping up refinery output, but also creates additional pressure on Pakistan’s foreign exchange reserves,” the OCAC letter said.

OCAC pointed out that private OMCs have been selling HSD at a discount of about Rs 10 per litre, which exceeds the profit of Rs 7.87 per litre earned by OMCs. Such deep discounts have eroded the market share of other companies and led to illegal dumping of the product at other petrol pumps, without benefiting consumers at the petrol pumps.

“The private oil marketing company involved in the case has been selling petrol at a discount of about Rs 10 per litre, a figure that exceeds the profit of Rs 7.87 per litre earned by the OMC. Such deep discounts have not only eroded the legitimate market share of other companies but also led to illegal dumping of the company’s products at the petrol pumps of other companies under the inducement of deep discounts. It should be noted that these discounts have not translated into lower prices for consumers at the petrol pumps and cannot be considered as public benefit,” the OCAC letter read.

OCAC urged OGRA to investigate how the private company could offer such a large discount and expressed concerns about possible links to smuggling of petroleum products.

“Given these circumstances, OGRA must thoroughly investigate how private companies can offer such large discounts that are beyond their profits. Moreover, there are reports of a massive influx of smuggled petroleum products into Pakistan, which raises the possibility that these discounts could be related to such smuggled products,” the OCAC letter said.

While OGRA has the power to approve imports, OCAC stressed the need for the regulator to protect the local industry in the national interest. It noted that Pakistan State Oil (PSO) has cancelled around 450 kilotonnes of HSD imports since January 2024 to support refineries amid low demand.

OCAC recommended a ban on non-KPC imports and directed OMCs to coordinate with refineries to improve products, especially when past commitments have not been met. It warned that ignoring actual demand and prioritizing imports over refined products would put pressure on foreign exchange reserves and promote unfair competition.

It is worth mentioning that the oil industry, including refineries, is deeply concerned and dissatisfied with the current situation. OCAC urged OGRA to seriously investigate the matter and take necessary measures to protect Pakistan’s legitimate businesses and local industries.