OMCs challenge Ogra’s ‘Take or Pay’ policy, citing financial risks, market imbalances

ISLAMABAD: A significant reduction in petroleum prices may be on the horizon as oil marketing companies (OMCs) indicate a potential drop of Rs12 per litre for petrol and Rs8 per litre for high-speed diesel (HSD) by this weekend.

However, the Oil and Gas Regulatory Authority (Ogra) is facing pushback from OMCs over its proposed ‘Take or Pay’ agreements with local refineries, which they claim could impose unfair financial burdens, reported Dawn.

Tariq Wazir Ali, chairman of the Oil Marketing Association of Pakistan (OMAP)—which represents around two dozen small and medium-sized OMCs—expressed concerns in a formal letter to Ogra officials, arguing that the ‘Take or Pay’ clause would shift the financial risks of market volatility entirely onto OMCs. As it stands, Ogra has mandated that OMCs must either purchase their allocated petroleum quotas from local refineries or incur penalties for failing to do so.

“In such a scenario, it is unreasonable to expect OMCs to absorb inventory losses while refineries remain shielded from market fluctuations,” Ali stated and stressed that many OMCs are already grappling with financial difficulties and that the new clause would exacerbate their struggles.

The introduction of the ‘Take or Pay’ mechanism follows repeated complaints from local refineries about excessive fuel imports, which they argued undermine domestic production and result in reduced operational capacity. Ogra has been accused of favouring certain OMCs, allowing petrol and diesel imports despite local availability.

OMAP raised “grave concerns” over the imposition of the ‘Take or Pay’ clause, asserting that it serves only the interests of larger players in the industry, further consolidating monopolistic control and hampering competition.

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Such an arrangement, they argue, will discourage new entrants and ultimately impair the overall efficiency of the petroleum supply chain.

Additionally, OMAP highlighted ongoing issues with refineries’ opportunistic practices, wherein they often limit supply when prices are expected to rise and flood the market when prices are projected to decline. This behaviour has historically coerced OMCs into costly imports, distorting market dynamics and undermining equitable treatment.

Moreover, OMAP pointed out the challenges posed by the unchecked cross-border influx of petroleum products, which further weakens local demand and intensifies the financial strain on OMCs. They stressed that the regulatory framework must adapt to these realities to maintain fair competition and protect the interests of all stakeholders involved.

The association has firmly requested that any new agreements include a solid enforcement framework to ensure that refineries adhere to fair supply commitments, regardless of market conditions. They warned that failing to do so would disproportionately shift market risks onto OMCs, many of whom are on the brink of financial collapse due to thin profit margins. This scenario could lead to defaults, supply disruptions, and potentially drive smaller OMCs out of the market, which would contradict the government’s goal of fostering competition and threaten energy security.

On the other hand, while all five refineries in the country support the ‘Take or Pay’ condition as essential for safeguarding domestic refining capacity, they have urged that any adjustments to supply agreements must be mutually agreed upon by all stakeholders and enforced through a transparent regulatory mechanism overseen by Ogra.