- Regulatory adherence, consumer interests, and market dynamics remains a key challenge in Pakistan’s petroleum sector
Interview with Mr. Zafar Iqbal — Chairman, SAI Group
PAGE: Tell me something about yourself, please:
Zafar Iqbal: I am Chairman of SAI Group / SAI Institute of Studies / SAI Company (Pvt) Limited.
I have been associated with the oil & gas sector for more than fifty years. I am the Founder President of the Defence Residents Society, Founder President of SAMEA, Founder of Bazm-e-Kiran and President of the Society for Promotion of Arabic. I have traveled to more than 25 countries and attended hundreds of seminars.
PAGE: How would you comment on margins to petroleum dealers and oil marketing companies (OMCs)?
Zafar Iqbal: The margin balance between Pakistan’s petroleum dealers and Oil Marketing Companies (OMCs) is crucial for fairness to consumers, dealers, and OMCs alike. Fair margins ensure that consumers receive competitive prices, dealers earn a sustainable income, and OMCs maintain profitability to sustain operations and investments. Striking this balance demands transparency, regulatory oversight, and dialogue among stakeholders to uphold fairness and foster a healthy petroleum market ecosystem. The oil and Gas Regulatory Authority (OGRA) is responsible for notifying the petroleum prices including margins every 15 days. The margins are changed only upon the demand raised by the dealers and OMCs, which are rationalised by OGRA for fairness and agreed upon with the stakeholders before notification. The combined dealers and OMCs margins are around 5% of the retail price and, therefore are not a burden on consumers.
PAGE: What role are smaller OMCs playing in the sector and how do they survive in the competitive environment?
Zafar Iqbal: As per OGRA data 44 OMCs have been issued marketing licences. 10 out of these are fully functional nationwide while the remaining hold provisional licences with some not yet allowed marketing. OGRA marketing licence requirements are onerous. An investment capacity of Rs500 million in a period of three years must be established by the applicant. The investment and marketing plan for the grant of licence requires a minimum of 20 days storage cover of the proposed sale within three years and the logistics plan. Technical competence for new entrants is normally proved by affiliations with international OMC. A provisional licence is granted for an initial period of three years. There are a large number of OMCs in the Pakistani market 1.24 million metric tonnes sales of various liquid energy fuels (Feb 2024). There is controversy on why such a high number of OMC licences are granted by OGRA. Is it just commercial gain to the economy through the investment commitment? The smaller OMCs do not offer benefits to the consumers by way of fuel price benefits or retail networks in major cities.
Some of these smaller OMCs have been granted provincial licences and may have better retail outlets in smaller urban and rural areas.
Consumers in large urban areas are skeptical about the fuel quality where they have a choice of visiting reputable OMCs for better assurance of quality and quantity. Rural users are rather oblivious to quantity and quality aspects. Smaller OMCs are also alleged to have compromised on the licence condition of maintaining 20 days cover of the proposed sale, as a means to reduce operating inventory cost. The impact of inventory gain/loss in maintaining full storage is of greater consequence to smaller OMCs, as they are more susceptible to storing optimum inventory for speculative inventory value gain through price reduction/increase.
PAGE: What contribution does the Competition Commission of Pakistan (CCP) make when it comes to protecting the end-user?
Zafar Iqbal: The Competitive Commission of Pakistan (CCP) checks anti-competitive business conduct that can have harmful effects on business competition in the economy and thus, on consumers. The Competition Act, of 2010, prohibits undertakings from abusing a dominant position in the market. The petroleum fuel prices in Pakistan are regulated by the Ministry of Energy (Petroleum Division) and are notified by OGRA, except for Hi-Octane (HOBC). Therefore there is no room for CCP to get involved to check anti-competitive activities by the OMCs as long as it remains a regulated activity. The dominance of OMCs is earned through the aggressiveness of their marketing and investment plans.
PAGE: Import and consumption trends of crude oil and refined petroleum products fluctuate with economic cycles. How would you comment from the perspective of Pakistan?
Zafar Iqbal: A proper comment requires a thorough analysis of petroleum product consumption patterns over various economic cycles. The only significant recent economic turn down for Pakistan that impacted fuel consumption was during the Covid pandemic and related lockdown (worst 2019-20) which would show the trend in perspective of the economy. The decline in fuel consumption was seen during this period but it is picking up to near pre-Covid level. For illustration, petroleum products sales by OMCs in metric tonnes (MT) for the period that includes Covid pandemic and the related lockdown are provided below. Economic stress except during Covid pandemic has not significantly impacted sales (Source: OCAC).
2017- 18: 25.6 million MT
2018-19: 19.86 million MT
2019-20: 17.48 million MT
2020-21: 20.35 million MT
2021-22: 23.23 million MT