Committee agrees on solvent use in petrol

ISLAMABAD:

A fact-finding committee formed to probe the Rs135-billion petrol scam has established that industrial chemical can be used as petrol adulterant and said that its import should not have been allowed without regulatory approvals but remained short of fixing responsibility for the lapse.

The committee, however, allowed the release of 874 stuck tankers carrying Light Aliphatic Hydrocarbon Solvent – the chemical used as petrol adulterant, white spirit and xylene on payment of a penalty of Rs300,000 per tanker. It linked future imports with prior import licence.

The government had constituted the committee to investigate the Rs135-billion scam related to the import of dangerous petrol as industrial chemical. The committee's findings showed that if all imported chemical in the last fiscal year was used as an adulterant, the loss was Rs40.4 billion, including a loss of Rs10.9 billion to the exchequer.

Based on official record of the FBR, The Express Tribune had reported last week that about Rs135 billion in illegal gains were made by the importers over a period of almost three years.

But the fact-finding committee assessed the illegal gains by assuming that the difference between the sale price of the adulterant and petrol was nearly Rs51 per litre while the FBR estimated the gain at Rs150 per litre. In pursuance of a letter of the Ministry of Energy, the deputy director regional office, Quetta is advised to impose a penalty of Rs300,000 on each tanker of the Light Aliphatic Hydrocarbon Solvent, white spirit and xylene and call for undertaking on a judicial stamp paper, according to an office memorandum issued by the Ministry of Energy on Thursday.

The importer will provide the undertaking that the products will be supplied to industries for industrial use and the Customs intelligence and district authorities concerned will confirm the receipt of the consignment of petroleum products in the respective industries, according to the order issued in light of the committee's findings.

In future, the importer will not import any petroleum product without securing a licence from Ogra; otherwise these products will be confiscated, it added. The government has settled the Rs135-billion scam by taking Rs262.2 million in penalties on the 874 tankers stuck at Quetta dry port after the scam was taken up by the Prime Minister's Office.

Petroleum Division Additional Secretary Hassan Mehmood Yousafzai carried out the fact-finding inquiry in assistance with all the departments concerned.

"The committee has established that the solvent could be potentially used for adulteration. However, the matter needs to be further investigated," Yousafzai confirmed to The Express Tribune on Saturday.

To a question about why the responsibility was not fixed on any officer, Yousafzai said that the Light Aliphatic Hydrocarbon Solvent was not included in the Import Policy Order, therefore, Customs authorities allowed its import without restrictions.

"Explosive laws are applicable to the product because it is classified as a Category A product. There is this flaw in law which needs to be filled," said the additional secretary and chairman of the fact-finding committee.

But the committee recommended the FBR to undertake another inquiry to ascertain the veracity of allegations leveled by the Directorate of Intelligence and Investigation of Customs about collusion and loss of revenue.

During the fact-finding committee's proceedings, Customs Officer Saeed Wattoo, who investigated the scam, proposed that the product may be confiscated and auctioned to refineries. But the committee did not agree to the proposal. Analysis suggests that up to 5% light aliphatic solvent may have been added to petrol to market the same, according to the committee. It is highly likely that a major quantity of this solvent is marketed through mixing in petrol at illegal and makeshift outlets in rural areas, according to the findings.

Findings

Import data shared by the Collector of Customs Appraisement Quetta confirms that there has been a surge in import of the solvent during FY2023-24 as the import volume reached 427,736 metric tons against 177,130 metric tons in FY2022-23 and 27,952 metric tons in FY2021-22, according to the fact-finding report.

"There has not been any considerable growth in industrial output (such as paint and varnish), which suggests its alternate usage such as an adulterant in petrol," said the main finding of the committee. But the committee ruled out any possibility of collusion between the Customs officials and importers. "Hydrocarbon Development Institute of Pakistan's test reports during the six-month period do not substantiate any collusion with the Customs Collectorate to facilitate the irregular import of solvent."

The committee also established that the solvent fell in the category of dangerous petroleum.

Para-7(1) of the Import Policy Order requires complying with the prohibitions, restrictions, conditions and requirements as prescribed under any other law, Act or rules, on specified imports, it added. The "customs authorities were required to ensure the requirement of a licence from the Department of Explosives for import and storage of solvent," said another main finding.

It recommended that there is a need to add a new import code of solvent in the Import Policy Order along with procedural requirements to import the product to ensure compliance with the licence requirement.

On the point of solvent use as an adulterant in petrol, the committee found that "due to its surge in import, which has no other plausible justification, its usage as adulterant cannot be ruled out, which is further supported due to favourable price differential of around Rs50.70 per litre".

If it is assumed that 427,736 metric tons, imported in fiscal year 2023-24 through Quetta dry port, were solely used for adulteration, it would have resulted in a revenue loss of Rs18.70 per litre to the government, which translates into Rs10.9 billion, according to the report.

The committee recommended that the 807 tankers carrying around 26,000 metric tons of solvent halted at the NLC Dry port Quetta and Taftan border pose serious safety risks and need to be cleared as per relevant rules.

It recommended that the collector Customs Quetta should ensure that the importers specify the destination of cargoes and their delivery is confirmed to the specified destination. The FBR should also use other measures such as sales tax payment tracking to ensure that the solvent is not used as a petrol adulterant.

To avoid adulteration, Ogra and oil marketing companies are asked to launch a massive fuel quality monitoring and sampling campaign at retail outlets. The Department of Explosives along with the district administration is also asked to launch a crackdown on illegal retail outlets.

The Ministry of Industries and Production is asked to assess the demand for solvent in industries and the required import of solvents and similar hydrocarbons for industrial use by taking appropriate measures.

The Ministry of Commerce through the National Tariff Board should review the possibility of rationalisation of tariff structure for solvent after carefully analysing its impact on the industry.

The committee underlined that one of the reasons for the surge in imports at Quetta was the waiver of the requirement of Electronic Import Form by the Balochistan High Court for imports from Iran via land route.