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Setting up oil marketing companies likely to cost Rs7bn

Setting up oil marketing companies likely to cost Rs7bn

ISLAMABAD: After facilitating a selective few, the government is contemplating to increase the cost of opening new oil marketing companies (OMCs) by 14 times – from Rs500 million to at least Rs7 billion – to limit their mushroom growth.

This comes following the opening of floodgates by Oil and Gas Regulatory Authority (Ogra) when it granted 21 fresh licences in just six months (July-Dec 2016) compared to 20 over the past 70 years.

The 21 companies were expected to invest a total of about Rs10.5bn over the next few years to set up storage and filling stations in various parts of the country.

All these licences were issued on the basis of criteria approved by the Economic Coordination Committee (ECC) of the Cabinet. The government has been under pressure from the big OMCs to rein in mushrooming growth of companies to protect quality investment.

The Ministry of Petroleum and Natural Resources is currently in discussions with all the stakeholders including market players and the regulator to put up a summary for approval by the ECC to introduce ‘New Criteria for POL Product Marketing Companies – 2017’.

Under the proposed criteria the prospective company would need to have Rs1bn for transport plan, Rs4bn for investment plan and at least Rs2bn equity as paid-up capital, besides arranging funds for working capital and oil supplies, etc.

Govt considers raising the cost by 14 times for new oil marketing companies

The company would now be required to apply for marketing license in accordance with the provisions of the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules, 2016 and provide 3-year plans like marketing plan, retail development, transportation, infrastructure development and investment plans with its application.

They would be required to explain in detail the proposed business volumes for retail and non-retail products on regional basis along with firm supply arrangements with local refineries and import arrangements for estimated volumes over and above the supplies to be arranged from local refineries.

They would also need to specify cities and locations where the retail sites would be set up covering both rural and urban areas. However, the prospective company shall be obligated to set up minimum of 10 per cent of its expected retail population to service remote and far flung areas with minimum facilities in accordance with specific regulations to be separately announced by the Ogra.

Under the transport plan, the company would be required to envisage in detail the modes to be used with the commitment that petroleum products safety and transport standards will be strictly complied with. However, the company would be required to invest a minimum of Rs1bn or more for arranging company owned tank truck fleet equipped with vehicle tracking system.

The company would also be required to submit a three-year infrastructure development plan. This would be based on province-wise regional demand with details of installations, storages and terminals at different locations, depots and capacities corresponding to the business strategy.

On top of that, the new company would be required to construct minimum storage of 15,000 tonnes each of high speed diesel and petrol or storage equivalent to minimum 20 days of annual average sale of the first year, whichever is higher prior to start of sales. The company dependant on import sourcing shall create adequate storage and terminal facilities at ports.

In addition, an investment plan would be required based on estimated business volumes and associated economics with the provisions to make cumulative investment of Rs4bn or more in the infrastructure and transport development, excluding the investment on retail development plan with a minimum upfront equity of Rs2bn in the share of paid-up capital at the time of application.

The new company would be entitled to procure, store, market and sell non retail petroleum products once they are granted marketing licence by the regulator. However, they will have to construct mandatory storages equivalent to 20 days demand for those products in accordance with marketing and infrastructure plans. Marketing License shall provisional for 3 years and it shall be confirmed only, when the Infrastructure Development, Transport and Investment Plans are fully executed.

Existing, approved OMCs shall also develop minimum storage of 15,000 MT each of HSD/MS or storage equivalent to 20 days of their annual average sales of the previous year, whichever is higher, within the next 3 years. Existing approved OMCs must also invest Rs1bn or more for arranging company owned tank truck fleet equipped with vehicle tracking system within the next 3 years.

Existing approved OMCs shall also be obligated to set up minimum 10pc of its expected retail population to service remote and far flung areas with minimum facilities to be declared by the Regulating Authority, within the next three years. Existing OMCs dependent on import sourcing shall also create adequate storage/terminal facilities at ports.

No construction work shall commence at any storage/ infrastructure project prior to the clearance obtained from the Ministry of Defence for which request shall be routed through Ministry of Petroleum and Natural Resources.

Retail outlets of an OMC shall not be eligible to sell products procured from any other OMC. Accordingly, all sorts of commercial arrangements and agreements between OMCs for obtaining product from each other would be strictly prohibited and shall be penalised by the Ogra.

Published in Dawn, June 14th, 2017

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