Oil cos raise the alarm regarding frequent changes in pricing formula

ISLAMABAD: Pakistan’s downstream petroleum sector has sounded an unprecedented alarm over what industry representatives are calling a regulatory crisis, after the government and the Oil and Gas Regulatory Authority (OGRA) changed the diesel pricing formula at least five to six times and the petrol pricing formula at least three times within a matter of weeks, a frequency of policy intervention that industry officials say has no precedent in the sector’s history and is now threatening the financial viability of the entire fuel supply chain. Sources told Business Recorder that the scale and pace of formula revisions since April 2026 have left refineries and Oil Marketing Companies (OMCs) unable to plan procurement, commit to import contracts, or protect their balance sheets against costs that the pricing mechanism no longer covers. The changes which included a switch between five-day and fortnightly Platts averages, the suspension of cost recovery provisions and a shift to calendar year-to-date averages for premiums and duties were introduced without industry consultation and presented each time as technical adjustments. Industry representatives have pushed back hard on that characterisation. “This is not a technical adjustment, ” a senior sector official said. “Changing a pricing formula five or six times in diesel and three times in petrol within weeks is a policy change of the most serious kind. It affects every cargo in transit, every letter of credit, every term contract. You cannot run a supply chain on a formula that changes faster than ships move. ” Sources said a single recent revision alone stripped approximately Rs45 per litre on diesel and Rs12 from the ex-refinery price benchmark. Across inventory already sitting in industry tanks procured against the formula that was in force at the time of purchase, the cumulative destruction of value is estimated at Rs145 billion. Because import cargoes are committed weeks in advance, each retroactive formula change guarantees that importers recover less than they paid, a risk that industry officials say was never part of the commercial framework they agreed to operate under. The situation has been compounded by an unresolved backlog of Price Differential Claims (PDCs), the amounts owed by the State to industry for selling fuel below cost on government instruction. Total outstanding PDCs stand at approximately Rs66 billion, against which only around Rs54 billion has been released, in tranches, against documentation requirements that have stretched a promised two-day settlement process into a months-long ordeal. OMC margins, meanwhile, have not been revised since September 2023, even as two years of sustained double-digit inflation has eroded their real value. Since petroleum products were made sales-tax-exempt in 2024, the industry has accumulated more than Rs86 billion in unadjustable input tax credit, carrying a financing cost estimated at approximately Rs7 billion annually at the current policy rate of 11. 5 percent. Demand conditions have further darkened the picture. Diesel sales in May 2026 fell to their lowest level in nearly three decades, with legitimate, taxed fuel unable to compete against a flood of smuggled product sold well below the notified price, a structural erosion of volumes that has slashed the revenue base just as costs have escalated. Industry sources warned that the crisis will not remain confined to corporate balance sheets. Pakistan imports the bulk of its crude oil and refined petroleum products from international suppliers and global trading houses that extend credit, term contracts and open lines on the expectation of timely payment. An industry stripped of liquidity cannot open or retire letters of credit, meet payment deadlines, or honour term commitments. When a buyer defaults, international suppliers withdraw credit terms, demand cash in advance and suspend deliveries. “Close to 70 percent of the country’s petrol, and a large share of its diesel and crude, arrives by sea, ” one official said. “Even a short interruption in that flow does not stay on a spreadsheet. It reaches the forecourt, and it reaches it fast. ” Sources noted that throughout recent regional tensions including supply disruptions linked to the Strait of Hormuz, the industry maintained uninterrupted nationwide supply, capped diesel margins, supplied jet fuel for Hajj operations at pre-war rates, and voluntarily contributed over Rs 7 billion toward reducing the PDC burden. Officials cautioned, however, that goodwill and balance sheet resilience are not the same thing, and that the former cannot substitute indefinitely for the latter. The industry has urged the government to adopt a transparent, consultative pricing framework in place of overnight formula changes; introduce timely and predictable PDC settlement; implement an automatic annual margin review; and pursue a phased, market-based pricing reform aligned with long-term supply chain sustainability. With foreign investors in the downstream sector already expressing alarm over regulatory unpredictability, officials warned that a failure to act would carry consequences well beyond the petroleum industry. “Energy security is national security, ” one source said. “A supply shock would land squarely on those who govern, not on the companies that warned of it. ” When contacted, Usama Qureshi, Vice Chairman of Cnergyico PK Limited, who attended the meeting with Petroleum Minister Ali Pervaiz Malik, Petroleum Secretary Hamed Yaqoob and other ministry officials, said the industry’s position was straightforward. “Our request is very simple, we need policy consistency. These frequent changes to the pricing mechanism are severely hampering business. Inventory losses and gains are a normal part of business, but the pricing formula should remain consistent. Regulators have burdened companies with additional losses by changing the formula multiple times. This has never happened in any other industry. We believe deregulation is the only solution. It will benefit consumers while also bringing the policy consistency that this sector desperately needs. ” Zubair Sheikh, CEO Wafi (Shell Licensee), in his comments stated: “The government’s handling of the recent global energy market uncertainty is commendable and they carefully kept fuel supplies flowing uninterrupted across Pakistan. Going forward, what is important for the industry is policy consistency, not on pricing alone but across the policy environment as a whole. Businesses can manage market risk, but regulatory uncertainty creates challenges for investment. A priority for us is prompt settlement of outstanding PDC, as delayed reimbursements place a significant working capital burden on oil marketing companies, as is the timely implementation of regulated margin adjustments. A stable and predictable policy framework is what sustains investor confidence and allows us to keep investing in Pakistan’s long-term energy security and economic growth. ” Copyright Business Recorder, 2026

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