The Oil & Gas Regulatory Authority (OGRA) of Pakistan has recently proposed an increase in the margins for Oil Marketing Companies (OMCs) and petroleum dealers, as part of its annual exercise to adjust margins in line with inflation and cost increases. This proposal has significant implications for key players in Pakistan’s energy sector.
The Proposed Margin Increase
Currently, OMC margins stand at Rs7.87 per litre, and OGRA has suggested raising this by Rs1.35 per litre, bringing the total margin to Rs9.22 per litre—a 17% increase. Petroleum dealer margins are also set to rise by Rs1.4 per litre, moving from Rs8.64 to Rs10.04 per litre, marking a 16% increase. These changes are proposed to keep pace with inflation, which stood at 31% last year, slightly ahead of the 29% inflation rate.
The increase comes after a series of margin revisions in the past year. OMC margins saw multiple hikes between September and November 2023, beginning at Rs6 per litre and gradually rising to Rs7.87 per litre over four separate instances. This cumulative increase of 31% highlights the rising costs facing the industry.
Impact on Key OMC Players
If the government approves the suggested Rs1.35 per litre increase, this could translate into significant financial gains for major oil marketing companies. Here’s how some of the key players are expected to benefit:
- Pakistan State Oil (PSO): With total motor spirit (MS) and high-speed diesel (HSD) sales of 3.3 million tons, PSO could see a post-tax impact of Rs14.8 per share.
- Attock Petroleum Limited (APL): APL, which sells 0.7 million tons of MS and 0.6 million tons of HSD, may experience a rise of Rs10.3 per share.
- Shell Pakistan (SHELL): With 0.7 million tons of MS and 0.4 million tons of HSD sales, Shell could benefit by Rs5.5 per share.
- Hascol Petroleum (HASCOL): Even though Hascol’s sales volumes are smaller (0.3 million tons MS and 0.1 million tons HSD), the company could still see a rise of Rs0.4 per share.
Broader Sector Outlook
Despite the proposed revisions, there is some uncertainty about the final decision. There is speculation that the government may not approve the full Rs1.35 per litre increase, and further clarity on the matter is still awaited. However, if approved, this margin adjustment is expected to provide a positive boost to OMCs, reflecting their rising costs amid ongoing inflationary pressures.
The equity market response to these potential margin hikes is likely to be positive, especially for larger players like PSO and APL, which have a dominant share in the market. However, smaller players like Hascol may experience only modest benefits given their lower sales volumes.