Since independence Pakistan has remained an energy-deficient country. After the nationalisation of industries by former Prime Minister, Zulfikar Ali Bhutto in the early seventies, the entire energy sector came under the control of the state. Despite the successive governments following deregulation, liberalisation and privatisation energy business is controlled by the state-owned companies.
A significantly large part of energy companies is in exploration and production, oil and gas distribution and even refining remains in the public sector. The names include Oil & Gas Development Company (OGDC), Pakistan Petroleum (PPL), Pakistan State Oil Company (PSO), Sui Twins, and Pak Arab Refinery and Pipeline Management.
Exploration & production
The depleting production of crude and gas in the country is the most glaring example of absurd policies being followed by the state. Every year the state-owned companies pay lofty dividends, despite lavish spending. However, if one looks at their drilling record/production the numbers are disappointing. One completely fails to understand that Pakistan has an enviable success record but the number of wells drilled in a year is disappointing.
Going a step further, the capacities of the rigs available in the country are also disappointing. One also failed to understand why can’t rigs be acquired on a rent/ production participation basis.
Refining
For decades oil refineries have worked under state control. Over the years government failed to undertake BMR and/or establish new refineries. According to the data available, the country has more than 20 million tonnes of oil refining capacity, but huge quantities of POL products are being imported. It is on record that one of the refineries is working at around 30% capacity. For ages, these refineries were not able to produce lead-free petrol. To the utmost disappointment, these are still producing high-sulfur furnace oil (HSFO).
Use of furnace oil in power generation
Being the signatories of various charters controlling the environment, Pakistan stopped power plants from using USFO. On one hand, power plants are being run on imported gas, causing depletion of foreign exchange reserves, and on the other hand, HSFO tanks started overflowing, leaving no alternative for the refineries but to suspend production. Lately, the government allowed the export of HSFO, which has limited demand in the global markets.
Oil marketing companies
At present more than two dozen oil marketing companies are operating in the country. However, the bulk of the market share is controlled by 6 companies; PSO has the largest market share. The entity should be enjoying excellent synergy, but the ground realities indicate that despite paying huge dividends and taxes, its share in the ‘circular debt’ is also the highest.
One also fails to understand why it has been given the mandate to import LNG; it is an oil marketing company, not a gas distribution company. Some of the sector experts say the time has come to de-bundle PSO and also privatise the de-bundled smaller entities.
Gas marketing companies
Sui Twins, Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipeline (SNGPL) are the two gas marketing companies operating in Pakistan. At present both companies suffer from the worst financial crunch. The financial crunch is the outcome of various factors that include: 1) the use of these companies by successive governments to attain political mileage, 2) excessive theft and 3) circular debt. The leakages, precisely theft, are due to unplanned approval of connections and depletion of transmission and distribution networks.
Oil storage facilities
Over the years, experts have been saying that the country has nominal oil storage facilities. Some of the experts say that the country has 15 days storage facilities, but others say the facilities are barely enough to store seven days requirement. According to an analyst, even the top six largest OMCs don’t have the required storage facilities.
Analysts are of the consensus that the government has to ensure the construction of POL facilities at ports as well as some central points for onward distribution throughout the country.
They suggest private sector should establish oil storage facilities and rent these out to oil marketing companies. These facilities should also be given the status of ‘Bonded Warehouses’.
Analysts are of the view that often small and uneconomic lots are imported, which increases transportation and handling costs. Since the specifications are universal, imported quantities of various clients could be consolidated and also stored in the same tanks.