The government has imposed Rs40 million penalties on six oil marketing companies (OMCs) for their noncompliance with the storage requirements. It seems like an attempt to put an end to an ongoing blame game after the recent shortage of petrol and diesel in the country. Shell Pakistan and Total Parco were each fined Rs10 million, while Attock Petroleum, Puma, Gas and Oil Pakistan and Hascol were imposed penalty of Rs5 million each. A point worth noting it that a fine of Rs10 million has been imposed on Total Parco Pakistan, a company where Petroleum Secretary Asad Hayauddin is member of Board of Directors and also Chairman. The show-cause notices were also issued to Byco and BE Energy.
The decision followed show-cause notices issued to the OMCs to explain their position regarding the availability of petroleum products at their retail outlets. However, their responses were “found unsatisfactory”. However, OMCs have attributed petrol shortage in the country to the ban on oil import imposed in late March due to surplus position of local refineries arising from suppressed demand. The OMCs are required to deposit the fine within 30 days and can seek review after payment of 50% amount within 30 days. The companies have also been asked to improve the supplies to their outlets immediately otherwise further fine could be imposed on continued contravention of the rules.
Sector experts say that petrol shortage in the country was due to the disruption in supplies and an unprecedented increase in demand during May which even the Energy Ministry could not foresee. The 20-day storage was currently limited to Karachi and could be extended to Punjab and Khyber Pakhtunkhwa. According to informed sources, petrol demand more than doubled in May, but nobody including the refineries, ministry, OGRA (Oil and Gas Regulatory Authority) or the oil companies could understand it.
A question arises, can Ministry and OGRA say that they were not responsible for the crisis. According to informed sources first OMCs were asked to lift products from local refineries and then also asked to defer their imports. In one of the cases, ship carrying product was anchored in the outer and the concerned OMC was asked to send it back.
This episode has taught a few lessons: 1) there is acute shortage of storage capacity in the country, 2) a huge quantity of products is stuck in the pipeline linking Karachi to Mahmood Kot and 3) the people at the helm of affairs have myopic view. Out of these six OMCs some have substantial foreign investment and imposition of penalties has certainly left a bad taste in mouth and annoyed them.
Let the test case be Total Parco, a company where all the reputed local and international companies have investment, particularly Pak Arab Refinery. Till recently it was the largest refinery of Pakistan established as a joint venture of Government of Pakistan and Abu Dhabi. PARCO also manages two pipelines, on for black and other for white oil products. Shell and Hascol also have substantial foreign investment. It is also worth noting that that over the years Hascol has emerged as the second largest OMC of Pakistan. All other OMCs have been making substantial investment for increasing number of their outlets.
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It is also a point worth detailed deliberation that in April prices of WTI and Brent touched historic low OMCs have to take a huge hit when government reduced prices of petroleum products. This also opens the Pandora’s Box of pricing mechanism. Ironically OMCs often face battering for high prices of POL products, but very few people knows that when international prices of crude oil go down government increase percentage of petroleum levy. Even in the next Federal Budget the government aims to raise Rs450 billion through petroleum levy.
During the recent crisis, it also became evident that OMCs don’t maintain even 20 day mandatory stock. According to informed sources even the government does not maintain strategic reserves. In United States the government maintains petroleum strategic reserves equivalent to more than 500 million barrels. It may be true that government just can’t maintain such kind of reserves, but it has to facilitate OMCs in maintaining such reserves. The situation became real hard this time because in a very short span of time, rather in days crude oil price reduced to less than half. However, the decision makers became jittery and made some bad decisions which led to shortage of petroleum in the country.
The policy makers should also know that country has highly in adequate refining capacity and produces just three products, petrol, diesel and furnace oil. Another bad decision of the government to discontinue use of furnace oil put refineries at odd and their tanks were left with no more capacity to store furnace oil.
Refineries operating in the country also need up gradation. National and Pakistan refineries were established in Karachi in early sixties, PARCO and Attock were established in mid seventies and Byco commenced operations in mid nineties.
Last but not the least a naphtha cracker has to be established in the country. A talk has been going on for nearly half a century but all in vain.