Country braces for worst diesel shortage

Experts say govt can avoid crisis if it clears price differential claims of Rs60b

ISLAMABAD:

Prime Minister Shehbaz Sharif has been warned by economists and industry experts that the country would face the worst shortage of diesel next month amid the harvesting season as its stocks are fast plummeting.

Sources told The Express Tribune that the experts had urged Premier Shahbaz to increase oil prices in order to avoid the swelling price differential claims that accumulated to around Rs60 billion in only one month of April 2022.

The prime minister was also informed that there would be no protests if the oil prices were increased. However, protests would start if diesel was not available in the market due to poor financial health of the oil industry on account of rising price differential claims. The interesting thing was that there was no approval from the government to clear the price differential claims of the oil industry.

Further, PM Shehbaz had refused to increase the oil prices despite the grave situation of the oil industry.

The sources said that diesel stocks were depleting fast as only 18-day supply remained in the country.

The Pakistan State Oil (PSO) was the country’s largest oil exporter. Earlier, it had made an attempt to import diesel by floating a tender but no trader participated.

Now, the PSO had arranged one diesel cargo at the highest premium rate of $13 due to non-availability of diesel in the global market following Russia and Ukraine war.

In a bid to tackle the looming diesel shortage crisis, the government had directed the oil refineries to boost local production. But the refineries were also facing financial crisis due to the pending price differential claims following the freezing of oil prices. They had drawn the attention of the government towards their reluctance in lifting furnace oil in order to boost production.

The Attock Refinery Limited (ARL) chief executive officer in a letter addressed to Secretary Petroleum Ali Raza Bhutta referred to the meeting held under his chairmanship on March 31, 2022.

The Oil and Gas Regulatory Authority and refineries' MDs/CEOs on the subject also attended the meeting wherein directions were given to all refineries to enhance their production to meet the growing demand of petroleum products in the country, especially furnace oil and diesel.

Read Diesel set to rise above Rs200

As assured during the meeting that despite serious challenges being confronted by the refining sector, they would certainly endeavour to enhance their respective throughputs, especially the maximisation of furnace oil production, in view of the problems in getting regular LNG supplies from the international market.

“In this connection, you would kindly recall that a few months back (December 2021 January 2022), the refineries were struggling to operate due to high stocks of furnace oil with little or no consumption in the power sector,” the ARL CEO said.

Some of the refineries even had to shut down their operations because of ullage issues and some had to export the furnace oil at substantial financial loss.

This cycle of scarcity and glut of furnace oil had not happened for the first time and the country had been confronted by such crisis in the past too.

In order to avoid repeated recurrence of such situations, “it is critically important to find a permanent solution which would enable maximum utilisation and sustainability of the refining sector and also ensure availability of petroleum products to the maximum possible extent”.

It was in this context that the refineries floated a working paper/proposal to the Ministry of Energy (Petroleum Division) in a letter sent on February 23, 2022 for running approximately 1,500 megawatts equivalent to furnace oil-based power plants on a regular basis.

It was envisaged that this proposal along with approval of the new refining policy would allow the existing refineries to upgrade/expand their respective units to produce Euro V compliant fuels with increased production.

“You would kindly appreciate that the growing demand of petroleum products in the country coupled with the changing geopolitical situation necessitates the need for having a modem und vibrant refining sector in Pakistan to ensure its energy security,” the CEO said.

He added that it was because of these reasons that the refineries had been emphasising the need for approving the draft refining policy which was diligently prepared by the Petroleum Division in consultation with the refineries over the last two years. This would enable the refineries to increase their production capacities.

The unfortunate delay in the final approval of the refining policy may jeopardise the refineries upgradation plans worth $4-5 billion and another $8-10 billion investment in the greenfield refinery, he added.

In view of the position explained above, “we request for a meeting to discuss our proposal with all stakeholders to be convened at your earliest convenience”, the CEO added.