Staff Report
ISLAMABAD: A heated dispute has erupted between local oil refineries and Oil Marketing Companies (OMCs) over a proposed “Take or Pay” clause in Sales Purchase Agreements (SPAs), with OMCs strongly opposing the move, warning of severe liquidity crises, supply chain disruptions, and potential market exits.
The Oil Marketing Association of Pakistan (OMAP), representing small and medium-sized OMCs, has formally approached the Oil and Gas Regulatory Authority (OGRA), cautioning that the proposed clause would unfairly benefit refineries and major OMCs while pushing smaller market players toward financial collapse.
The controversy follows a letter from five leading oil refineries—Attock Refinery Limited (ARL), National Refinery Limited (NRL), Pak-Arab Refinery Limited (PARCO), Cnergyico PK Limited (CPL), and Pakistan Refinery Limited (PRL)—urging OGRA to enforce mandatory upliftment of locally refined petroleum products before allowing imports. The refineries argue that OMCs frequently fail to lift agreed quantities of High-Speed Diesel (HSD) and Motor Gasoline (MOGAS), disrupting refinery operations and threatening supply chain stability.
In their communication to OGRA Chairman Masroor Khan, the refineries cited Rule 35(g) of the Pakistan Oil (Refining, Blending, Transportation, Storage, and Marketing) Rules 2016, which prioritizes local production over imports. They have expressed support for OGRA’s suggestion of implementing a “Take or Pay” clause but insist that it should be introduced through mutual agreement and strict regulatory oversight.
To resolve the issue, refineries have called for an urgent joint meeting with OMCs under OGRA’s supervision to finalize a binding framework ensuring compliance with local product upliftment before any import approvals are granted.
A senior OGRA official, speaking on condition of anonymity, confirmed that such a meeting is expected to take place this week to deliberate on the proposal.
OMCs Strongly Oppose Clause, Cite Market Volatility
OMCs, however, have outright rejected the proposed clause, arguing that it unfairly shifts the burden of market volatility onto them while shielding refineries from financial risks.
In a letter to OGRA, OMAP Chairman Tariq Wazir Ali voiced strong concerns, warning that the clause would severely impact the financial viability of small and medium-sized OMCs. He accused refineries of manipulating supply dynamics—reducing supply when prices are expected to rise, forcing OMCs to import fuel at higher costs, and offloading stocks aggressively when prices decline, resulting in financial losses for OMCs.
OMCs have also raised concerns over the growing influx of smuggled petroleum products, which has significantly reduced demand for locally refined fuel. They argue that imposing a binding upliftment obligation without first addressing the issue of cross-border fuel smuggling would be highly unreasonable.
OMAP has cautioned that if OGRA enforces the “Take or Pay” clause without ensuring a level playing field, many small OMCs will face severe liquidity crises, leading to potential supply shortages and market exits.
OMCs Propose Alternative Model
Instead of the proposed clause, OMCs have advocated for a “Take & Pay” model, which would allow them to procure fuel based on actual market demand and financial capacity rather than being locked into rigid pre-commitments.
OMAP has urged OGRA to adopt a balanced regulatory approach, ensuring that refineries also adhere to fair supply commitments while addressing longstanding issues affecting OMCs, such as delayed product allocations, discriminatory pr
