Circular curses

Pakistan drinks a lot of petrol and as vehicle ownership expands the supply chain is of crucial importance

Pakistan drinks a lot of petrol, and as vehicle ownership of all types expands rapidly the supply chain is of crucial importance if a crisis is to be averted. Currently that crisis remains a possibility but it has for now been headed off. There was particular anxiety in Punjab but the private Oil Marketing Companies (OMCs) have been compelled to release their stocks or face swingeing penalties as well as the cancellation of their licences. Pressure at the pumps increased for stations run by Pakistan State Oil (PSO) as OMCs stopped selling their products and the government stepped in at the weekend to bring some order to the impending chaos — and to twist a number of arms.

In large part this is yet another self-inflicted wound as the industry as a whole is plagued by circular debt and there are disagreements about which regulatory authority has primacy. The government does itself no favours being insufficiently agile to respond to spikes in demand and the private companies — as is their right — manipulate the market to their own profitable ends and in this instance are anticipating an increase in the cost of petroleum products on 30^th September.

Stocks of petrol are sized at 6-7 days (government requirement is for 21 days as mandatory) but with Shell and Attock Oil well below their import quotas the squeeze was on PSO and the entire shambles is compounded by the petroleum ministry imposing a supply quota that PSO itself has been begging to be lifted. The petroleum division has had the request and not actioned anything in respect of it for a week. There are hiccups along the supply chain linked to logistical bottlenecks and the entire industry is plagued by chronic circular debt, not unlike the power sector which suffers similarly. The crisis has been averted in this instance but all the elements are there for it to re-emerge — and it will — unless essential structural reforms are undertaken. We expect no early improvement.

Published in The Express Tribune, September 26^th, 2017.

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