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WEEKLY
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| PPP senator to push for cut in OMCs’ margins, taxes on oil |
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Thursday, May 29, 2008
By Saad Hasan
KARACHI: A senior leader of Pakistan People’s Party (PPP) on Wednesday said she is going to push for a cut in margin of oil marketing companies (OMCs) and state taxes when she meets senior government officials in the next few days.
Senator Rukhsana Zuberi told The News that talks would focus on ways to ease petroleum product prices at pumps by slashing avoidable taxes and capping profits of marketing companies.
“Petroleum product prices have increased tremendously in the last few months,” said PPP Senator Zuberi who is also a member of Senate’s standing committee on petroleum and natural resources “But have the salaries increased by the same proportion?”
The reports of change in pricing formula of petroleum products have been circulating since past few days as government mulls over an unpopular decision of reducing oil subsidies and passing on the international price hike to consumers.
Surge in oil price has a chain reaction on inflation. The government was pushed under debt of billions of rupees owed to OMCs after it capped domestic prices.
A vocal critic of oil pricing formula introduced by last government, Ms Zuberi said she would meet finance and petroleum ministers to explain her position on the issue.
“I have not forgotten,” she said recalling her tirades against OMCs and refineries when her political party was in opposition till last year. “I still believe taxes and margins (of OMCs) could be reduced.”
Ms Zuberi has been instrumental is amending the 2002 pricing formula twice before. But every time government had made a change, it had to face the wrath of OMCs and their dealers.
Last year, POL retailers had closed petrol pumps across the country when government excluded petroleum development levy (PDL) from the retail price-build-up on basis of which margins of OMCs and their dealers were calculated.
That decision came ahead of a Supreme Court hearing into an alleged oil scam and was believed to be a contingency step on part petroleum ministry to remove the anomaly from the formula. The case is still pending.
In 2006, sales tax was removed from the formula for calculating petrol price, which had a direct impact on the earnings of the OMCs and dealers. It is said that this step was taken to rectify a so-called 2002 agreement allowing industry margins over taxes.
Ms Zuberi has been contesting the logic for allowing OMCs and dealers to charge 3.5 percent and 4 percent commission over taxes and inland freight margin, which companies get for keeping the price of a fuel constant everywhere in the country.
Profits of two largest marketing companies, Pakistan State Oil (PSO) and Shell, have seen phenomenal growth mainly on back rising international price and inventory gains, which occur when imported oil in reserves adds value as international prices soar.
Nine months (July March 2007-08) profit of PSO went up 300 percent to Rs8.4 billion from Rs2.1bn recorded in same period of last year. Similarly earning per share of Shell increased manifolds to Rs48.39 from loss of Rs4.23 a year before.
High Speed Diesel (HSD) or diesel has become main source of income for OMCs in recent years. It has also become the major bone of contention for government as it eats major chunk of subsidy on oil.
If calculation of OMCs margins over an amount, which includes taxes is an anomaly then formula for calculating diesel price is next to be changed.
The 3.5 percent margin of OMCs is calculated over ex-refinery/import parity price of diesel, which includes 10 percent custom duty and inland freight equalization margin.
Refineries have strongly opposed any change in custom duty as it makes up so-called deemed duty, retained by refineries processing diesel locally.
Interest rate hike
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ISSN 1563-9479 
