Pakistan's petroleum minister has summoned an emergency meeting on Tuesday following an industry protest over a unilateral change in the pricing formula that has resulted in Rs104 billion in losses for the downstream petroleum sector. The Oil Companies Advisory Council (OCAC) approached the minister to urgently address the formula change, which has inflicted a substantial financial hit on oil marketing companies (OMCs) and refineries.
Meeting called after industry outcry
According to a notice issued by the petroleum division, the minister will meet chief executive officers of oil refineries and OMCs on June 23. The government recently made a massive cut in diesel and petrol prices following a reduction in crude oil prices after the Iran-US peace deal. In a letter to the petroleum minister, OCAC stated that the latest price reduction was achieved at the expense of the downstream industry by adopting yet another new pricing formula, causing huge exposure for companies.
Rs104 billion value erosion detailed
Based on prevailing industry stocks of approximately 505,000 metric tonnes of motor spirit (MS) and 655,000 metric tonnes of high-speed diesel (HSD), this exposure translates into immediate value erosion of approximately Rs104 billion across OMCs and refineries. These losses represent destruction of working capital, liquidity and shareholder value, arising not from commercial inefficiencies but from a unilateral policy decision imposed on an industry already under significant financial stress, according to OCAC.
Industry demands consultative framework
OCAC conveyed grave concern over continued unilateral pricing interventions and their detrimental impact on the viability of Pakistan's downstream petroleum sector. The council called for an equitable and consultative pricing framework and measures to safeguard mandatory strategic inventories. Over the past several months, the industry has repeatedly highlighted the severe financial consequences of abrupt pricing decisions and growing policy uncertainty. Despite numerous representations to the ministry, pricing decisions continue without meaningful consultation with entities responsible for maintaining the country's fuel supply chain.
Industry sacrifices highlighted
Throughout this period, the industry stood firmly behind the government's objective of maintaining energy security. Both OMCs and refineries committed significant financial resources to ensure uninterrupted fuel availability amid elevated procurement costs. OMCs sustained nationwide distribution and maintained mandatory strategic inventories despite mounting working capital pressures. Refineries supported the national effort by capping the HSD margin, maintaining pre-war kerosene pricing for the armed forces, supplying jet fuel for Hajj flights at pre-war rates, and contributing over Rs7 billion towards reducing the price differential claim.
Warning against unsustainable losses
The industry had repeatedly cautioned that any inventory gains during periods of international price escalation would be temporary and would reverse once market conditions normalised. Complex industry dynamics continue to be assessed through simplified analyses rather than established market fundamentals, including inventory procurement cycles, financing costs and mandatory stockholding obligations. However, such relief cannot be financed through absorption of losses by OMCs and refineries. The current approach transfers the disproportionate financial burden of a sovereign policy decision onto industry balance sheets, a practice that is inequitable, commercially unsustainable and inconsistent with the principles of a predictable energy market.
Compounding pressures on OMCs
These pressures are compounded by the fact that OMC margins were last revised in September 2023 and have not been revised since, despite persistent inflation, rising operating costs and escalating compliance requirements. Consequently, the industry faces rising operating costs, unresolved margin adjustments, outstanding price differential claims of approximately Rs66.7 billion, increasing mandatory stockholding obligations and unprecedented losses.
Risk of investor withdrawal
The implications extend beyond immediate financial losses. Pakistan's petroleum sector has historically attracted substantial foreign investment from internationally recognised energy companies that committed billions of rupees to storage infrastructure, logistics networks and retail development. These investments were made on the premise of regulatory consistency and policy stability. The continuation of abrupt interventions makes the consequences for the sector no longer a matter of risk but of certainty: the withdrawal of investors and the insolvency of weaker participants. Such an outcome would severely damage investor confidence at a time when Pakistan is actively seeking foreign direct investment.
The industry can no longer continue absorbing extraordinary policy-induced losses. The industry remains committed to supporting national energy security, but these objectives cannot be sustained if the commercial foundations of the sector continue to be weakened through repeated unilateral interventions and the persistent transfer of policy costs onto industry participants, according to OCAC.
