pakistan energy conference 2011 l.
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

  • 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.

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


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




Total Capex

Cumulative Capex



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





and ZOT


Cumulative Capex Rs billion

Annual Capex Rs billion






























1995/6 (18mth)

Modernization of Retail

Introduction of New Vision

Outlets by Chevron & Shell

Retail Outlets by PSO

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

  • 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