Karachi, July 05, 2023 (PPI-OT): FY23 PDL target missed over lower POL sales

OMC sales in Jun-2023 declined 31% YoY to 1.3mn tons (+4% MoM), taking FY23 sales to 16.6mn tons (-26% YoY). The decline was led by slowdown in economic activity including considerably lower auto sales, lower demand from power sector and declining agri activity compared to SPLY.

Lower OMC sales do not bode well for PDL collection targets set in understanding with the IMF. As per our calculations, PDL collection shows a shortfall of Rs~240bn compared to the initial target of Rs855bn set for FY23. We believe there is a strong likelihood for the government to increase PDL charge to Rs60/litre both for MS and HSD in the near future to meet the ambitious target of Rs869bn set for FY24. Pressures on tax collection may also invite imposition of GST charge on these products, currently at zero.

POL volumes during FY23 declined 26% YoY

OMC sales for the fiscal year declined by 26% on a YoY basis largely due to ongoing slowdown in economic activity including considerably lower auto sales, lower demand from power sector and declining agri activity compared to SPLY. Moreover, some evidence of consumers’ tendency to reduce consumption of petrol for any increase in petrol prices also reflects in the volume growth trend. POL product sales for FY23 stood at 16.6mn tons for Pakistan.

For the month of June, OMC volumes dropped 31% compared to SPLY led by all- around deterioration in POL items’ demand. On a sequential basis, however, OMC volumes inched up by 4% to 1.3mn tons, marking the third consecutive increase.

PDL collection falls short of the target

The inability to achieve FY23 PDL targets can be attributed to reduced OMC sales and govt's reluctance in increasing PDL charge. In order to boost revenue collection, the government introduced PDL on MS and HSD in the previous fiscal year. PDL charges were raised to Rs50/ltr for both MS (by Nov-2022) and HSD (by Apr-2023), which then helped improve PDL collection despite low volumes throughout the year.

As per our calculations, PDL collection for FY23 shows a shortfall of Rs240bn compared to the target of Rs855bn. PDL target is one of the key components as per IMF’s policy actions. The government has recently further raised PDL on Petrol by Rs5/ltr taking it to Rs55/ltr. We believe there is a strong likelihood for the government to increase PDL charge to Rs60/litre both for MS and HSD in the near future to meet the ambitious target of Rs869bn set for FY24. Pressures on tax collection may also invite imposition of GST charge on these products, currently at zero.

Market share trends have shifted of late

Overall market share trend during FY23 showed players broadly remaining resilient in the face of declining overall volumes. PSO’s overall market share for month of June dropped to 48%, from 54% in the same period of last year. On the other hand, HASCOL was a prominent player to gain in share compared to previous year over a lower base.