Refineries offer furnace oil at discount

It comes after power plants refused to procure oil and inventories swelled

ISLAMABAD:

Oil refineries have offered discounted furnace oil prices to power plants in the wake of mounting stocks of the fuel.

Earlier, the power sector had refused to lift furnace oil from the refineries that resulted in shutting down of Pakistan Refinery Limited (PRL) and partial operations by other refineries.

In a letter to the Power Division, the director general oil said that the refineries had offered discounted prices of furnace oil to the power plants.

The energy minister decided in a meeting held on January 6, 2022 that the refineries should offer furnace oil at a discount.

As per DG oil, Pak-Arab Refinery Limited (Parco) has indicated a price of Rs83,000 per metric ton for power plants. Meanwhile, National Refinery Limited (NRL), PRL and Cnergyico have also offered discounted prices at Rs81,000, Rs80,000 and Rs86,000 per metric ton respectively.

Keeping this in view, the DG oil requested the Power Division to look into the matter for appropriate action with regard to the merit order for supply of furnace oil to the power plants, given the severe ullage issues faced by the refineries, especially Parco.

In a letter to the Petroleum Division, PRL said that they had discussed the grave issue of a huge build-up of furnace oil inventories of local refineries due to its non-utilisation in power production.

During a meeting with the energy minister, it was suggested that the refineries should be asked to consider further lowering the furnace oil prices, which could make oil-based power plants competitive.

“While we appreciate the minister’s desire to solve this problem, but in our considered opinion, the suggestion of lowering ex-refinery price of furnace oil for a limited period is not the appropriate solution of this problem, as it does not address the refineries’ sustainability issue,” said PRL Managing Director Zahid Mir.

Read CCOE to discuss refinery policy

He said that giving a discount on furnace oil prices could mean that in future, furnace oil prices would be reduced irrespective of the demand. Hence, further lowering of prices in such a manner was not beneficial to the refineries, he added.

It is to be noted that PRL’s ex-refinery price of furnace oil for the first fortnight of January 2022 is Rs86,000 per ton against the import parity price of Rs92,434 per ton and monthly average free-on-board (fob) price of reference crude (Arab Light for December 2021) of approximately Rs101,000 per ton.

“The price comparison clearly shows the refineries’ loss and any further reduction in the price of furnace oil will compound the sustainability challenges.”

Since the start of 2020, the refineries had been working with the Ministry of Energy (Petroleum Division) on the proposed refinery policy which, if approved, would comprehensively address the refineries’ sustainability challenges and would also support the government’s endeavours for consumption of environment-friendly fuels.

“It is imperative that the draft of refinery policy is approved without any further loss of time by the authorities concerned,” he said.

He requested that a meeting of all the relevant stakeholders, including the Power Division, be called by the Ministry of Energy for a comprehensive solution of the issue.

Published in The Express Tribune, January 14^th, 2022.

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