Chairman Oil Marketing Association of Pakistan ( OMAP) Tariq Wazir Ali has raised Concerns over new clause of OGRA regarding petroleum Take or Pay. 

In this regard he wrote a letter to Chairman OGRA Masroor Khan and said that we are writing to express our grave concerns regarding the proposed imposition of the “Take or Pay” clause in the Sales Purchase Agreements (SPAs) between refineries and OMCs. This matter requires your urgent attention as it poses significant risks to the financial sustainability of OMCs already struggling under the burden of multiple unresolved issues, awaiting redress from the regulator for an extended period.

 

It is extremely concerning that OGRA, as the custodian of fair regulatory practices, is considering implementing such a binding clause without taking into account the ground realities and the precarious financial conditions of OMCs. The “Take or Pay” arrangement will only serve the interests of refineries and large OMCs at the expense of smaller players, further consolidating the monopolistic control of the big fish in the oil sector. Such a step will severely hamper competition, discourage new entrants, and ultimately harm the overall efficiency of the petroleum supply chain.

 

Furthermore, it is pertinent to highlight that the proposed clause does not address the critical issue of refineries’ opportunistic behavior, which has been a longstanding grievance of OMCs. It is a well-known fact that refineries routinely refuse to supply product when price increases are anticipated, thereby forcing OMCs to resort to costly imports. Conversely, when prices are expected to decline, refineries attempt to offload maximum stocks to OMCs, resulting in financial losses for the latter. This practice not only distorts the market but also violates the principles of equitable treatment among stakeholders.

 

Moreover, considering the current FN scenario, Mogas prices are expected to drop by 12, and HSD by 8. In such a situation, it is unreasonable to expect OMCs to bear inventory losses while refineries remain insulated from the market’s volatility. The proposed mechanism disproportionately shifts the entire burden of market price fluctuations onto OMCs, exacerbating their already fragile financial condition.

 

Another critical factor impacting the market is the persistent cross-border influx of petroleum products, which our concerned organizations have been unable to control for a prolonged period. This uncontrolled influx has severely dented the demand for locally sourced products, further amplifying the financial hardships faced by OMCs. Any regulatory framework must take this reality into account to ensure fair competition and protect the legitimate interests of all stakeholders.

 

Imposing a binding obligation on OMCs to uplift pre-committed quantities without addressing the exploitative practices of refineries will only exacerbate the current imbalance. The proposed mechanism must be accompanied by a robust enforcement framework ensuring that refineries adhere to the same rules of fair play and supply commitments, regardless of market price trends. Otherwise, this one-sided arrangement will unfairly shift the entire burden of market volatility onto OMCs, many of whom are already on the verge of financial collapse.

 

The “Take or Pay” clause will also have far-reaching consequences on the liquidity and operational capacity of OMCs. Most small and medium-sized OMCs operate on thin margins with limited working capital. Forcing them to uplift committed quantities without regard to market demand will significantly increase their financial exposure, potentially leading to defaults, supply disruptions, and eventual market exits. This will not only undermine the government’s objective of promoting competition but will also create supply bottlenecks, jeopardizing energy security.

 

In the current scenario and business environment, OMCs can only act on a “Take & Pay” basis, which ensures that upliftment of products is aligned with actual market demand and financial capacity, without exposing them to unnecessary financial risks.

 

Given the gravity of the matter, OMAP urges OGRA to adopt a balanced and impartial approach by:

 

Convening an inclusive consultative meeting with equal representation of all stakeholders, including small and medium OMCs, before finalizing any decision on the “Take or Pay” clause.

Introducing a transparent enforcement mechanism that holds refineries accountable for timely and fair supply of committed volumes, irrespective of price fluctuations.

Prioritizing the resolution of longstanding issues faced by OMCs, such as delayed product allocations, discriminatory pricing practices, and inadequate infrastructure support.

Ensuring that any new regulatory framework promotes competition, protects smaller players, and fosters a level playing field across the entire oil supply chain.

 

As the primary regulator of the oil sector, OGRA’s role is to uphold fairness, transparency, and equal opportunity for all stakeholders, without favoring any particular segment. We firmly believe that any decision taken without addressing the legitimate concerns of OMCs will have severe ramifications for the entire downstream petroleum sector.

We look forward to your kind consideration of our concerns and request an urgent meeting to discuss this matter further