In April 2025, the Oil Companies Advisory Council (OCAC) in Islamabad formally requested the Oil and Gas Regulatory Authority (OGRA) to increase the profit margin for oil marketing companies (OMCs) by 27%, raising it from Rs. 7.87 to Rs. 10 per litre. This proposed hike aims to address rising operational costs and financial challenges within the industry.

Reasons for the Request

  • Financial Strain: The OCAC emphasized the need to revise the OMC margin, unchanged since September 2023, citing Rs. 73.48 billion in unadjusted sales tax accumulated from April 2022 to June 2024.
  • Sales Tax Exemption Impact: The ongoing exemption of sales tax on petroleum products is projected to increase operational costs by Rs. 33 billion in the fiscal year 2024–25.
  • Rising Costs: The OCAC proposed a new base margin of Rs. 8.13 per litre, reflecting:
    • Stock financing costs increasing from Rs. 3.01 to Rs. 3.22 per litre.
    • Handling losses rising from Rs. 0.27 to Rs. 0.82 per litre.
    • Operating expenses climbing from Rs. 2.92 to Rs. 4.09 per litre.
  • Profit Margin Adjustment: The OCAC recommends a revised gross profit margin of Rs. 1.87 per litre, set at 23%.

Additional Proposals

The OCAC urged OGRA to begin recovering various costs from July 2024, including:

  • Costs related to the sales tax exemption.
  • Unadjusted sales tax financing.
  • Demurrage expenses.

These recoveries could be facilitated through the Inland Freight Equalization Margin (IFEM) for both OMCs and refineries.

Industry Concerns

The OCAC warned that failure to address these financial pressures could jeopardize the sector’s ability to:

  • Maintain efficient operations.
  • Invest in essential infrastructure development.

The request underscores the urgency of aligning profit margins with the industry’s current economic realities to ensure sustainability.