ISLAMABAD: The Prime Minister’s Office has called the attention of the Petroleum Division to the mounting exchange rate loss of Rs26 billion faced by the oil industry, along with Rs65 billion in unrecovered sales tax, which is severely impacting cash flows.
In a memorandum, the Prime Minister’s Office highlighted concerns raised by the Oil Marketing Association of Pakistan’s chairman regarding fund management issues plaguing emerging oil marketing companies (OMCs). These challenges include significant unrecovered exchange losses, resulting from flaws in the foreign exchange gain/loss recovery mechanism, and the inability to recoup paid sales tax due to reduced sales tax on petroleum products. The latter has led to Rs65 billion being held back in the inland freight equalisation margin (IFEM).
The memorandum requested that views and comments on the matter be submitted by June 12, 2024.
In a related letter to the military leadership, the Oil Marketing Association of Pakistan’s chairman praised the establishment of the Special Investment Facilitation Council (SIFC) to attract foreign investment but stressed the need to consider the environment for local investors who face significant structural challenges in fund management.
Despite acknowledgment from the Ministry of Energy (Petroleum Division) and the Oil and Gas Regulatory Authority (Ogra) of the existing flaws and the resultant losses, there has been reluctance to expedite the reimbursement process. The delays in refunding the substantial amounts held up in the IFEM, due to prolonged audits, have severely impacted the operational efficiency of OMCs, which heavily rely on imports conducted in US dollars.
The industry has warned that these unresolved issues are not only affecting their financial stability but also deterring potential foreign and local investments in Pakistan’s energy sector. Addressing these challenges is crucial for fostering a sustainable business environment and boosting investor confidence.
Story by Zafar Bhutta
