pakistan energy conference 2011 l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Pakistan Energy Conference 2011 PowerPoint Presentation
Download Presentation
Pakistan Energy Conference 2011

Loading in 2 Seconds...

play fullscreen
1 / 17

Pakistan Energy Conference 2011 - PowerPoint PPT Presentation


  • 204 Views
  • Uploaded on

Pakistan Energy Conference 2011. Reasonable OMC & Refining Sector Margins Imperative for Investment in Energy Sector. Monday April 11th, 2011. Pakistan Oil Market Overview. Pakistan is an energy deficit country Petroleum Product demand in 2009-10 was 20.16 million M. Tons.

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Pakistan Energy Conference 2011' - oshin


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
pakistan energy conference 2011
Pakistan Energy Conference 2011

Reasonable OMC & Refining Sector Margins Imperative for Investment in Energy Sector

Monday April 11th, 2011

pakistan oil market overview
Pakistan Oil Market Overview
  • Pakistan is an energy deficit country
  • Petroleum Product demand in 2009-10 was 20.16 million M. Tons

2.88 million M. Tons

10.4 million M. Tons

6.88 million M. Tons

oil marketing sector statement
Oil Marketing Sector statement

Due to progressive policies adopted a decade ago, the oil sector in Pakistan attained international quality service standards and is driving the country’s economy by:

  • Making oil products available across the country
  • Ensuring safety in handling dangerous oil products
  • Assuring quality and quantity of oil products
  • Enhancing the image of the country (quality retail stations)
  • Introducing world class standards and technological innovations
out look of pol demand in pakistan
Out look of POL Demand in Pakistan
  • Demand of POL products in Pakistan is Expected to grow by 3% per annum (PMG~6%, HSD~2%, FO~4%)
  • Such increase would require additional investment in infrastructure
  • A forced reduction in oil consumption due to inadequate infrastructure will potentially slowdown economic growth
  • We have already experienced growing Gas outages during the winter months, these are expected to increase in coming years, thereby impacting industrial output
  • Shortage of Gas will only be compensated through oil
  • Therefore investment in timely development of the oil sector infrastructure is extremely important to support GDP growth
areas that require major investments
Areas that require Major Investments
  • Refineries
  • Increasing storage capacities
  • Increase ship handling capacity at port
  • Increase in capacity for conversion of Naphtha into PMG
  • Pipeline to link Keamari Port with Port Qasim
  • Refineries upgradation to produce products of Euro II standard
  • Development of LPG Autogas station
margin of refineries
Margin of refineries
  • Ex-Refinery price of POL products are determined on the basis of import parity price (IPPS)
  • Therefore refinery margin in Pakistan are dependant on difference of cost and IPP
  • Government has given the protection to local refineries in the form of Deemed duty- But
frequent changes in refinery price formula
Frequent changes in refinery price formula
  • Removal /Reduction of deemed duty protection
  • Hypothetical formula of Ex-refinery Price of PMG (price allowed to ex-refinery is lower than international market)
  • Removal of incidental charges from Import Parity Price (IPP) formula in Dec 2010
  • Ex-refinery price of SKO & LDO as announced by OGRA is even lower than IPP (Shifting the burden from GoP to Refineries)
margins of omcs
Margins of OMCs

OMCs were allowed in 2002 a margin of 3.5% of consumer price

Since 2006, Govt has tweaked OMC margin 7 times

Such adhoc changes in margins have shattered the confidence of existing and future investors

amendment in omc margins
Amendment in OMC Margins

Year 2002 - OMC were allowed a margin of 3.5% of consumer price

Year 2006 - the margin was fixed @ 3.5% of price before GST

Year 2006, the margin was fixed @ 3.5% of price before Petroleum levy & Sales Tax

July 2008 -The margin was frozen in Rupee term at the then prevailing level

Aug 2008 - The margin was reduced to and capped @ AG light US$100/BBL

Feb 2009 - Fixed margin of Rs. 1.35/ltr in HSD and on rest of the product 4% of price excluding GST & PDL (It was fixed for the oil price range of US$45-$80) - Current price is in the range of US$110-US$120/BBL

Dec 2010 - Margin on all products were fixed in rupee terms

margins history motor gasoline
Margins* history – Motor gasoline

3.5% margins on end selling price till March 15, 2006

GST & PDL exclusion from margin calculation

% was increased from 3.5% to 4%

Shift from fixed margin regime to % basis

Current decline in oil prices effecting profitability

Margin is fixed in Rs. per liter

* Margins plotted as % of retail price

margins history diesel
Margins* history – Diesel

3.5% margins on selling price till March 15, 2006

GST exclusion from margin calculation

Margins were fixed in rupee per liter

Shift from fixed margin regime to % basis

Decline in oil prices effected profitability

* Margins plotted as % of retail price

margins cover omcs investments and expenses
Margins cover OMCs investments and expenses
  • Capital expenditure on storages, pipelines and retail outlets
  • Investment in inventory
  • Rising cost of doing business:
    • Interest rates, KIBOR: 14%
    • Rs/US$ parity: Rs 86+
    • Electricity, gas, fuel
    • Insurance cost
    • Traveling
    • Human Resource
    • Land leases
    • Advertisement
    • Repairs & Maintenance
consumer price index
Consumer Price Index

Source: www.tradingeconomics.com

linking of omc margins with price has brought in investment in the country
Linking of OMC margins with price has brought in investment in the country

5

40

WOPP

Total Capex

Cumulative Capex

35

4

Shift of fixed margin regime to % basis – an impetus for growth in investment

30

Asia

Petroleum

25

and ZOT

3

Cumulative Capex Rs billion

Annual Capex Rs billion

20

2

15

10

1

5

0

0

1993

1994

1997

1998

1999

2000

2001

2002

2006

2007

1985

1986

1987

1988

1989

1990

1991

1992

2003

2004

2005

1995/6 (18mth)

Modernization of Retail

Introduction of New Vision

Outlets by Chevron & Shell

Retail Outlets by PSO

slide15
Capping / Reducing margin did not have any material impact on the customer price but will be detrimental to investment
  • This sample calculation is based on the prices effective April 1, 2011
  • GoP revenues are linked to Oil prices e.g. Custom Duty, PDL, GST and Income tax
  • A reduction in OMC margins will not have a significant impact on the consumer,
  • Reduction in margin is also a cause of increasing the tendency of malpractices in the industry
net margin comparison different industrial sectors
Net Margin comparison – different industrial sectors

Source: Elixir securities

Year : 2010

recommendation
Recommendation
  • GoP should announce a long term and sustainable policy on Refinery Price and OMC Margin
  • Give a legal protection to investors against:
    • Adhoc changes in Government Policies
    • Changes in taxation structure
    • Unfair burden on oil sector in the form of Price Differential Claims and Circular Debt
    • Providing a level playing field to all players of industry
    • Fully deregulating the petroleum sector in the longer term