PSO to begin import of Euro-V fuel

Petroleum Division seeks approval for import from first week of June

Zafar Bhutta June 04, 2020

ISLAMABAD: Consumers in Pakistan will finally be able to get Euro-V standard fuel in the current month as state-run oil marketing giant Pakistan State Oil (PSO) is set to kick off imports after approval of the government.

PSO will make partial imports from Kuwait Petroleum Corporation, which has been supplying fuel to Pakistan over the past 40 years. Pakistan has been using a 60-day interest-free credit facility from Kuwait since 2000.

Pakistan meets 60% of its high-speed diesel requirement through production by domestic refineries and imports around 40% of the demand annually. Import of Euro-II high-speed diesel commenced in January 2017.

PSO’s share in high-speed diesel import is around 55% that meets 22% of the country’s total consumption, which is primarily sourced from Kuwait Petroleum through a government-to-government contract spanning more than 40 years.

Pakistan meets 30% of its annual petrol requirement through domestic refineries and imports around 70% of the need.

Sources told The Express Tribune that PSO’s contract with Kuwait Petroleum would be valid till December 2020 for supply of Euro-II diesel. PSO is bound to take delivery of 2-2.3 million tons from the Kuwaiti company this year.

A senior government official was of the view that it was not possible to immediately import Euro-IV or Euro-V diesel from sources other than Kuwait Petroleum due to a minimum annual volume committed to the company.

Denying supplies from Kuwait Petroleum may have serious legal, commercial and compliance implications for PSO and the government due to the risk to reputation in the international market.

“Pakistan is using a 60-day interest-free credit facility extended by Kuwait for high-speed diesel import since 2000, which would be discontinued. Leaving Kuwait Petroleum may also result in releasing around $150 million of payment immediately to Kuwait Petroleum for the 60-day credit,” said a senior official of the Petroleum Division.

Sources said the Petroleum Division had sought approval of the Cabinet Committee on Energy, scheduled to meet on Thursday, for some import of Euro-V fuel from the first week of June.

Subsequently, all imports will conform to the Euro-V specifications with effect from the third quarter of calendar year 2020. Import of petrol below Euro-V specifications may not be allowed to any oil marketing company (OMC) beyond the deadline, according to the Petroleum Division.

All imports of diesel may conform to Euro-V specifications with effect from January 2021 set by Kuwait Petroleum. Import of diesel below Euro-V standard may not be allowed to any OMC beyond that deadline, the Petroleum Division said, adding that PSO, however, may start importing Euro-V diesel from the first week of June 2020, as and when available from Kuwait Petroleum, which indicated that it would start trial production from the first week of June.

The Petroleum Division proposed that the current marketing mechanism for diesel and petrol with regard to pricing and inland freight equalisation margin should prevail and the Oil Companies Advisory Council (OCAC) and the Oil and Gas Regulatory Authority (Ogra) would take further action accordingly.

It proposed that the prevailing oil pricing formula may continue ie average of five days of Platts Arabian Gulf for Euro-V diesel and petrol plus premium/ freight and incidental charges on an actual basis.

The pricing benchmark/mechanism for domestic refineries for diesel and petrol production may be based on the actual landed import price for PSO.

Ogra would finalise price calculation in that regard in consultation with oil refineries and PSO so that any undue advantage to the refineries producing fuel below Euro-V standard could be avoided, the Petroleum Division added.

It said mixing of imported and locally produced grade by the refineries and OMCs may be allowed as it would improve overall specification of the product.

Published in The Express Tribune, June 4th, 2020.

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