Govt removes ban on furnace oil imports as power demand rises

Directs PSO to start purchasing fuel oil for supply to power plants

Zafar Bhutta April 05, 2018

ISLAMABAD: The government has lifted the ban on import of furnace oil for running power plants and has directed state-owned Pakistan State Oil (PSO) to place orders for bringing fuel cargoes in order to meet growing electricity demand in summer.

Talking to The Express Tribune, a senior government official said the Ministry of Energy (Petroleum Division) had written to PSO, asking the oil marketing giant to resume the import of furnace oil.

“The Cabinet Committee on Energy has decided to resume import of furnace oil to meet growing demand from power plants,” he said.

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“We can confirm that PSO has received instructions from the Ministry of Energy for the import of furnace oil. PSO, as a responsible corporate citizen, is committed to supporting the nation and the economy with consistent supply of petroleum products,” PSO said in response to a query. The government had imposed restrictions a few months ago on the consumption of furnace oil in power plants, preferring liquefied natural gas (LNG) in electricity production. Since then, PSO had placed no fresh orders for imports.

At present, the demand for electricity in the country stands close to 17,000 megawatts, which is expected to cross 20,000MW in the peak summer season.

On the other hand, the cheaper hydroelectric power generation has dipped to just 1,050MW because of a slowdown in water inflows into rivers compared to the generation capacity of 7,000MW from this source.

Earlier, the government had been giving verbal orders to PSO to start importing furnace oil, but it did not pay heed. However, the Petroleum Division has now given the directive in writing.

Earlier, the curbs on furnace oil use in power production had stirred serious problems for domestic refineries where stocks of the petroleum product had been piling up. They were of the view that the government had taken the decision in haste and their production of petroleum products could decline with lower furnace oil output.

The government has decided that this time power producers will make payments to PSO in advance to avoid the accumulation of circular debt. Owing to inability of the power producers to clear earlier dues of PSO, receivables of the oil marketing company have swelled beyond Rs300 billion.

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The Economic Coordination Committee (ECC) had approved a circular debt settlement plan on March 7 in an attempt to immediately pay Rs80 billion to the power producers and fuel suppliers out of Rs526 billion worth of dues aimed at easing the financial strain.

According to the official, after payment of Rs80 billion, the government will be able to manage the circular debt to some extent.

It was decided to acquire loans from commercial banks and the cost of debt servicing would be borne by electricity consumers through their monthly bills. The consumers will pay 43 paisa per unit to service the debt.

The circular debt stood at Rs526 billion as of December 2017 which included Rs312 billion in energy cost and the remaining Rs214 billion in capacity charges, liquidity damages and loan mark-up.

An earlier circular debt payment of Rs480 billion in 2013 is currently being investigated by the National Accountability Bureau. The Senate Standing Committee on Finance, in its probe, has already established undue payment of over Rs62 billion to independent power producers (IPPs).

Published in The Express Tribune, April 5th, 2018.

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