KARACHI: The oil sector has sought the review and rationalisation of the existing recovery methodology for line fill financing costs, requesting that recovery be allowed at the actual financing rates incurred by oil marketing companies (OMCs) to reduce financial pressure on the industry.
The Economic Coordination Committee (ECC) approved in 2023 that OMCs be allowed line fill costs associated with the transportation of MS (petrol) and HSD (diesel) through the white oil pipeline. Consequently, recovery was initiated by the Oil and Gas Regulatory Authority (Ogra) effective from January 16, 2024.
The Oil Companies Advisory Council (OCAC), in a letter to Ogra, stated that the matter of line fill financing cost recovery, particularly the rate used for recovery, has already been highlighted by the industry. However, the council noted that the issue remains unresolved and continues to impact the financial sustainability of OMCs adversely.
The letter noted that while the Karachi Interbank Offered Rate (Kibor) is widely recognised as a benchmark reference rate, it does not represent the actual borrowing costs incurred by OMCs. In practice, banks extend financing to OMCs at a premium over Kibor, typically around Kibor plus 2.0 per cent, reflecting credit risk, tenor, and other standard banking considerations.
Accordingly, the recovery of line fill financing costs at Kibor alone does not reflect the true and unavoidable costs being borne by the industry. Based on the financing levels currently incorporated in the Inland Freight Equalisation Margin (IFEM), the financial impact of this mismatch for line fill during the period of January to June 2025 indicates an unrecovered amount of Rs814 million.
The oil body stated that this unrecovered amount represents a material financing cost currently being absorbed by OMCs. In the prevailing interest-rate environment, such partial recovery is exerting significant pressure on cash flows, working capital, and the overall financial health of the industry. The council argued that the continued non-recovery of actual costs is neither sustainable nor consistent with the principle of cost neutrality embedded in the regulatory framework.
It emphasised that line fill is a regulatory and operational necessity, essential for ensuring the uninterrupted and efficient supply of petroleum products through pipeline infrastructure. Consequently, the financing costs associated with line fill are legitimate, unavoidable, and directly attributable to regulatory and operational compliance. The non-recognition of the Kibor premium component, therefore, effectively results in the partial disallowance of actual costs, which the council claims lacks merit and undermines fairness.
The OCAC called upon Ogra, in its capacity as the regulator and monitor of the oil industry, to ensure that genuine and prudently incurred costs are fully recoverable. Aligning the allowed financing rate with the actual borrowing costs incurred by OMCs, including the applicable premium over Kibor, would restore cost neutrality, support industry viability and help safeguard an uninterrupted supply to the national economy.
