Pakistan fuel price cut inflicts PKR 104 billion loss on oil industry

Pakistan’s downstream petroleum industry has warned that a recent government-imposed fuel pricing adjustment has inflicted an estimated PKR 104 billion loss on oil marketing companies (OMCs) and refineries, eroding working capital and threatening investor confidence in the sector.

In a letter addressed to Petroleum Minister Ali Pervaiz Malik, the Oil Companies Advisory Council (OCAC) said the latest reduction in petroleum prices was achieved through a new pricing formula that shifted the financial burden onto the industry, resulting in what it described as an “unprecedented financial shock.”

According to the letter, industry inventories of about 505,000 metric tons of motor spirit (MS) and 655,000 metric tons of high-speed diesel (HSD) suffered an immediate value erosion of approximately PKR 104 billion following the price cut.

“These losses represent a real and immediate destruction of working capital, liquidity and shareholder value,” OCAC said, adding that the losses stemmed not from operational inefficiencies or market competition but from a unilateral policy decision imposed on an industry already facing financial strain.

The council said the industry had supported the government’s efforts to maintain energy security and prevent fuel shortages during heightened geopolitical tensions and supply disruptions since March 2026.

According to OCAC, OMCs continued nationwide fuel distribution and maintained mandatory strategic inventories despite mounting working-capital pressures. Refineries, meanwhile, capped HSD margins, maintained pre-war kerosene prices for the armed forces, supplied jet fuel for Hajj flights at pre-war rates and contributed more than PKR 7 billion toward reducing the Price Differential Claim (PDC).

“These were shared sacrifices, borne in the national interest and at a direct cost to the industry’s financial position,” the letter said.

The industry body said it had repeatedly warned policymakers that inventory gains recorded during periods of rising international oil prices would be temporary and would reverse once global markets stabilized.

OCAC argued that industry dynamics were being assessed through simplified analyses rather than market fundamentals, including inventory procurement cycles, financing costs and mandatory stockholding requirements.

While supporting government efforts to provide relief to consumers, the council said such relief should not come at the expense of OMCs and refineries.

“The current approach transfers the disproportionate financial burden of a sovereign policy decision onto industry balance sheets,” OCAC said, calling the practice inequitable, commercially unsustainable and inconsistent with a transparent energy market.

The council also highlighted long-standing financial pressures facing the sector, noting that OMC margins were last revised in September 2023 and implemented in December 2023. They have not been updated since despite persistent inflation and rising operating costs.

It said the industry faces unresolved margin adjustments, outstanding PDC claims of approximately PKR 66.7 billion, increasing strategic stockholding obligations and significant losses resulting from recent pricing decisions.

OCAC warned that continued policy interventions could accelerate the withdrawal of foreign investors and push weaker market participants toward insolvency.

The letter noted that Pakistan’s petroleum sector has historically attracted substantial foreign investment in storage infrastructure, logistics networks, retail outlets and supply-chain development on the assumption of regulatory consistency and policy stability.

“Against the backdrop of an already gradual contraction in international participation in recent years, the continuation of abrupt and unilateral interventions makes the consequences for the sector no longer a matter of risk but of certainty,” the council said, warning of potential bankruptcies and damage to Pakistan’s efforts to attract foreign direct investment.

Describing the situation as a “critical juncture,” OCAC urged the petroleum minister to hold an immediate meeting with industry representatives to discuss a more consultative pricing framework, mechanisms to protect mandatory strategic inventories from sudden value destruction and measures to restore investor confidence in the downstream petroleum sector.

The council reiterated its commitment to ensuring uninterrupted fuel supplies and supporting national energy security but cautioned that those objectives could not be sustained if repeated policy interventions continued to weaken the industry’s commercial foundations.