OCAC urges Ogra to review existing recovery methodology

RECORDER REPORT

ISLAMABAD: The Oil Companies Advisory Council (OCAC) has requested Oil & Gas Regulatory Authority (Ogra) to review and rationalise the existing recovery methodology for line fill financing cost and allow recovery at the actual financing rate incurred by OMCs to reduce financial pressure on the industry.

In a letter to Executive Director Finance Oil & Gas Regulatory Authority Altaf Hussain, Secretary General OCAC, Syed Nazir Abbas Zaidi referenced Ogra letter of January 13, 2026, and the meeting held on January 14, 2026, chaired by the Chairman Ogra, wherein various issues concerning the oil industry and the oil industry’s response regarding the recovery of line fill financing cost were deliberated.

The OCAC reiterated that the matter of line fill financing cost recovery-particularly the rate used for recovery had already been highlighted by the industry in its earlier correspondence of July 4, 2024. Despite this, the issue remains unresolved and continues to adversely impact the financial sustainability of Oil Marketing Companies (OMCs).

According to the industry, Karachi Interbank Offered Rate (KIBOR) is widely recognised as a benchmark reference rate; however, it does not represent the actual borrowing cost incurred by OMCs. In practice, banks extend financing to OMCs at a premium over KIBOR, typically around KIBOR plus 2percent, reflecting credit risk, tenor, and other standard banking considerations. Accordingly, recovery of line fill financing cost at KIBOR alone does not reflect the true and unavoidable cost being borne by the industry.

Based on the financing levels currently incorporated in IFEM, the financial impact of this mismatch for the line fill during the period January-June 2025 un-recovered variance was Rs. 814,231,167 (approximately Rs. 814 million); (i) financing cost recovered at average KIBOR (11.07percent): Rs. 4,508,126,561; and (ii) actual financing cost at KIBOR (11.07percent) + 2percent: Rs. 5,322,357,727.

This un-recovered 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. Continued non-recovery of actual costs is neither sustainable nor consistent with the principle of cost neutrality embedded in the regulatory framework.

OCAC has emphasised that line fill is a regulatory and operational necessity, essential for ensuring uninterrupted and efficient supply of petroleum products through pipeline infrastructure. Consequently, the financing cost associated with line fill is legitimate, unavoidable, and directly attributable to regulatory operational compliance. Non-recognition of the KIBOR premium component; therefore, effectively results in partial disallowance of actual costs, which is not on merit and undermines fairness.

In this context, OCAC has submitted that Ogra-being the regulator and monitor of the oil industry—has a critical role in ensuring that genuine and prudently incurred costs are fully recoverable. Aligning the allowed financing rate with the actual borrowing cost incurred by OMCs, including the applicable premium over KIBOR, would restore cost neutrality, support industry viability, and help safeguard uninterrupted supply to the national economy.

After explaining the issue, OCAC has requested Ogra to review and rationalise the existing recovery methodology for line fill financing cost and allow recovery at the actual financing rate incurred by OMCs. This measure would meaningfully reduce financial pressure on the industry.