The Oil and Gas Regulatory Authority (Ogra) has committed to sharing a revised framework and implementation timeline for settling long-pending price differential claims (PDCs) with the downstream petroleum industry. This assurance came during a meeting chaired by Ogra's new leadership, which brought together chief executives of over 30 oil marketing companies (OMCs). Industry participants described the engagement as constructive after years of unresolved issues and repeated representations by the Oil Companies Advisory Council (OCAC).
Industry Challenges Highlighted
During the meeting, the OCAC chairman and the Oil Marketing Association of Pakistan (OMAP) chairman highlighted financial and regulatory challenges confronting the downstream petroleum sector. The primary focus remained on outstanding PDCs, with unpaid claims exceeding Rs66 billion. Industry representatives urged the regulator to simplify the verification mechanism by reverting to a purchase-based assessment, arguing it would expedite claim processing and reduce disputes.
According to participants, Ogra agreed to circulate revised terms of reference (TORs) for the PDC verification process along with a timeline to settle the outstanding claims. Other key concerns, including revision in OMC margins, recovery of investments in mandatory digitalisation initiatives, and sales tax-related issues, were raised but will be addressed in subsequent meetings.
Financial Strain on OMCs
OMCs have long argued that unresolved PDCs, frozen marketing margins, rising compliance costs, and policy uncertainty undermine the financial sustainability of the downstream petroleum sector. They maintain that resolving these issues is essential for ensuring uninterrupted fuel supply and building investor confidence. PDCs owed to OMCs remain unsettled at Rs66.7 billion, tying up substantial working capital during a period of acute financial strain, even as the industry has eased this burden, with refineries contributing over Rs7 billion to the PDC reduction.
OMC margins were last revised in September 2023, with implementation staggered till December 2023, despite persistent inflation, rising operating, financing, and compliance costs, and mandatory stockholding obligations. OMCs are also making investments in digitalisation, estimated at Rs1.2 billion, now linked to the margin framework under Ogra's recent directive.
Pricing Formula Instability
Between March 7 and June 20, 2026, the pricing formula was changed four times for motor spirit (MS) and seven times for high-speed diesel without prior consultation. The June 20 revision alone caused an estimated single-day exposure of Rs104 billion for OMC and refinery stocks, with OMCs holding roughly 505,000 metric tons of MS and 655,000 MT of HSD. These losses arose due to abrupt policy decisions imposed on companies required to carry mandatory strategic stocks, often exceeding 20 days of coverage.
Fertiliser Plants Gas Supply
In a separate development, the government avoided a burden of Rs16 billion in price differential claims by providing locally produced gas to two fertiliser plants—Agritech and Fatima Fertiliser. Earlier, during the US-Iran war, electricity consumers bore high power costs due to imported LNG consumption by power plants. To avoid expensive LNG, gas load-shedding duration was increased for domestic consumers, and indigenous gas supply was approved for the two fertiliser plants that had been running on LNG.
The Economic Coordination Committee (ECC) gave the directive to pass on the benefit of cheaper gas to farmers. The Ministry of National Food Security & Research briefed the ECC that urea accounts for around 65% of total fertiliser consumption in Pakistan. The country has 10 operational urea plants with a collective annual production capacity of about 6.6 million tons, sufficient to meet domestic demand if provided gas without interruption.
Urea Supply and Demand
Eight plants, receiving gas from the Mari field and the Sui Southern Gas Company (SSGC) network, generally operate year-round. The remaining two—Fatima Fertiliser and Agritech—rely on gas from Sui Northern Gas Pipelines Limited (SNGPL) and together have an annual capacity of 900,000 tons. Since October 2018, these two plants had relied on re-gasified LNG due to unavailability of domestic natural gas, with their operation dependent on ECC decisions tied to national urea requirements.
Since April 2023, the SNGPL-based urea plants remained operational, enabling accumulation of a buffer stock of more than 300,000 tons per month. Improved supply brought down urea prices beginning July 2024. The price stood at Rs4,361 per 50kg bag compared with Rs4,705 in July 2024, a decline of 7.3%. Over the same period, international urea prices rose 38.9%. The ex-Karachi price of imported urea was calculated at Rs8,601 per bag in February 2026.
A supply-demand analysis indicated total urea availability during the Rabi 2025-26 season would be around 4.28 million tons, comprising 1.15 million tons of opening stock and 3.13 million tons of domestic production. Projected urea demand for the season was around 3.42 million tons. The buffer stock for the remaining Rabi period would stay well above 300,000 tons. However, closure of SNGPL-based plants and the FFC (Port Qasim) plant during Kharif 2026 would result in a production loss of 718,000 tons till September 30, 2026, potentially leading to fertiliser shortage after July 31 and price escalation.
