ARL cuts output to 33% as smuggling bites

Illicit oil trade, price deregulation may put plant upgrade plans in jeopardy

ISLAMABAD:

Attock Refinery Limited (ARL) has become the first victim of smuggled petroleum products as the refinery on Monday shut down its main distillation unit, reducing its capacity to only 33%, owing to the piling up of unsold diesel stocks.

Oil industry sources warned that other refineries were also likely to close their units if the unbridled smuggling of petroleum products was not stopped.

Oil smuggling into Pakistan has continued unabated and this oil is now available across the country.

Industry officials said that smuggling and proposals of price deregulation without consultation with all stakeholders may put plant upgrade plans of refineries in jeopardy. For upgrading, they were expected to bring investments of $5-6 billion on the back of recent approval of a new policy.

All refineries including Pakistan Refinery Limited (PRL), Pak Arab Refinery (Parco), ARL, Cnergyico PK and National Refinery Limited (NRL), in a joint letter written to the Oil and Gas Regulatory Authority (Ogra) chairman on Monday, expressed deep concern over the deregulation of petroleum products.

Ogra has proposed that oil marketing companies (OMCs) should be allowed to efficiently source their supplies either locally or internationally, in contradiction to the established principle laid down in Rule 35(g) of the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016, which mandates the first uplift right of products from local refineries, they said.

“It is disheartening to observe Ogra’s advocacy for corresponding changes in the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016 to accommodate the aforementioned recommendation,” they said, stressing that refineries were critical assets for the nation’s strategic interests, and their sustainability and continuity were pivotal for the prosperity and economic development of Pakistan.

“Local refineries serve as the backbone of industrial development and are intricately linked to the country’s defence and energy security needs. Over-reliance on imported fuels not only poses risks to the energy supply chain but also carries the potential for disastrous consequences.”

Following extensive efforts from all stakeholders, the cabinet had approved the Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries 2023.

The planned upgrades, with an investment of $5-6 billion, are aimed at producing cleaner, environmentally friendly fuels and meeting Euro-V specifications, while also increasing the local production of high-speed diesel (HSD) and motor spirit (petrol), thus reducing reliance on imported fuels and saving foreign exchange.

“It would be unfortunate if these planned up-gradation projects were abandoned due to irrational recommendations as the deregulation of inland freight equalisation margin (IFEM) will also impact the adjustment of customs duty paid by refineries on crude oil imports, putting importing refineries at a significant disadvantage,” they said.

The refining sector, already struggling due to the inflow of smuggled inferior products in the market, will face a further setback if the recommendations are adopted.

“Given the complexity and critical nature of deregulating petroleum products in the country, it is imperative that local refineries, as major stakeholders, are consulted and involved in the decision-making process before moving forward,” they said, adding that the refining sector required pragmatic and supportive measures, rather than recommendations that could potentially lead to permanent closure.

These days, Ogra is in the process of signing agreements with the refineries for upgrading their plants. However, the smuggling of petroleum products has threatened their operations and ARL has become its first victim.

Though the prime minister and the military establishment have pledged to stop the smuggling, the situation has turned worse for the refineries whose sales have dropped and they are compelled to shut down.

Published in The Express Tribune, April 23^rd, 2024.

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