Parco on verge of closure as diesel stocks jump

Rampant Iranian oil smuggling reduces demand for diesel supplies

ISLAMABAD:

As the smuggled Iranian oil floods Pakistan’s markets over weak government control due to dollar shortage, diesel stocks have jumped to the historic level of 46 days of consumption, pushing the country’s largest refinery, Pak-Arab Refinery Limited (Parco), towards shutdown.

According to market players, the government has deliberately loosened control over the smuggling of oil due to the scarcity of dollars for petroleum imports. This strategy has created an Iranian oil glut in Pakistan’s markets as domestic demand for diesel and petrol dropped to half.

Consequently, the government is not only losing revenue of Rs1 billion per day but the situation is also posing a grave risk to the survival of oil industry, whose sales have slowed down.

Oil industry stakeholders voiced concern over the excessive Iranian oil smuggling and other issues at a meeting chaired by State Minister of Petroleum Musadik Malik on Tuesday. The meeting was attended by the Petroleum Division secretary and a large number of oil companies’ representatives, who complained about several challenges and protested over government’s inability to address those issues.

The issues raised by the oil companies included delay in recovery of exchange rate losses, artificial control over oil pricing, freight problems and curbs on Letters of Credit (LCs) for legal oil imports.

The meeting was told that the oil industry had been barred from opening LCs whereas the smuggling of oil continued at a rapid pace, posing a threat to the operations of local refineries.

It was further informed that petroleum stocks at Parco had piled up to unsustainable levels owing to the reluctance of oil marketing companies (OMCs) to procure the required quantities of diesel and petrol.

Parco representatives told the state minister that the refinery’s output had dipped to 75% as OMCs were not lifting the stocks. They feared that the refinery could shut down in the coming days if the situation persisted.

Earlier, the oil refineries had shut down in the face of furnace oil glut after power producers refused to purchase the stocks.

Now, the same situation has emerged in the case of diesel and petrol, whose stocks are growing with no demand in market even during the current crop harvesting season. Instead, consumers are inclined towards the smuggled oil.

According to sources, it is estimated that 10,000 to 12,000 tons of oil is being smuggled every day into the country. They pointed out that besides the daily revenue loss of around Rs1 billion to the government due to the oil smuggling, sales of the domestic oil industry have also slowed down.

According to them, the country has stocks of 670,000 tons of high-speed diesel, which is enough to meet consumer demand for 46 days.

In the case of petrol, the country has 550,000 tons of stocks that will satisfy consumption needs for 26 days.

According to the law, oil companies are required to maintain stocks of petroleum products for at least 20 days of consumption. In the past, they had hardly maintained stocks which triggered oil crisis several times.

Average demand for diesel in April is estimated at 14,000 tons per day as opposed to 26,500 tons in the same period of last year.

Oil industry officials cautioned the government that demand had dropped to half, which was threatening the functioning of oil refineries.

Published in The Express Tribune, April 6^th, 2023.

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