Sept diesel imports to cost $140m
Oil refineries have repeatedly lodged complaints and written letters to the regulator, urging facilitation in the disposal of their products, which is essential for smooth operations. photo: REUTERS
Despite having surplus oil stocks providing 45-day cover, Pakistan is expected to see an outflow of $140 million owing to the import of high-speed diesel (HSD) planned for September.
According to sources, the import of 50,000 metric tons of HSD costs an average of around $38 million. As September imports are estimated at 183,000 metric tons, they will lead to an outflow of $140 million.
The approval of International Monetary Fund (IMF) loan programme has already been put off because of Pakistan's external financing gap, therefore, the government should be prudent enough in its spending of foreign currency reserves.
The approximate monthly HSD demand in the country is around 500,000 tons, of which 425,000 tons are supplied by local refineries. Oil and gas account for the largest outflow of US dollars but this time around sufficient HSD stocks are available, which could last more than 45 days. In that situation, sources said, there was absolutely no reason to allow HSD import in September.
Grappling with excessive stocks, oil refineries have lodged protests against the increase in import of diesel and inflow of smuggled oil products. Oil Companies Advisory Council (OCAC) Chairman Adil Khattak, in a letter sent to Oil and Gas Regulatory Authority (Ogra) Chairman Masroor Khan, has called for taking urgent action to stop HSD import and smuggling.
Khattak drew Ogra's attention to what he called was unjustified import of HSD by an oil marketing company (OMC).
"These imports are being made regularly in blatant disregard of the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016, with allegations of unfair practices that directly impact the entire oil industry," he said in the letter.
Despite consistent opposition from refineries, the import permission sparks concerns about the effectiveness of regulating the oil sector. Oil refineries, being OCAC members, have regularly lodged complaints and written letters to Ogra, urging facilitation in the disposal of their products, which is essential for smooth operations.
"Unfortunately, the necessary support from Ogra has been clearly lacking," he said. "While Ogra has the right to allow imports to any OMC, such permissions are unjustifiable when local refineries are willing and able to meet the needs of OMCs."
He argued that the grant of import permission to a company on the pretext of capital injection by a larger international player or due to the unreasonable commercial terms imposed on local refineries, was simply not justified.
He recalled that Attock Oil Company, the parent company of Attock Refinery Limited, National Refinery Limited and Attock Petroleum Limited, had raised concern about the unilateral decisions taken during product review meetings. In a letter dated August 21, 2024, the group chief executive emphasised the need for implementing Ogra Rules, according to which OMCs should lift products from local refineries before considering imports.
As of today, HSD stocks in the country exceed 600,000 tons, with two cargoes of about 90,000 tons expected to be released in the coming days. With depressed sales of around 16,000 tons per day, the sustainability of refinery operations appears bleak.
Moreover, the smuggling of petroleum products from neighbouring countries remains a significant concern. "We have also been alarmed by reports of imports through the Taftan terminal of Light Aliphatic Hydrocarbon Solvent Oil, a hazardous petroleum product, without licence," he said, adding that credible reports indicated that the solvent oil was being used as an adulterant in petrol and had been directly offloaded at petrol pumps across the country.
A fact-finding committee, set up to investigate the matter, allowed the release of 874 tank lorries with a penalty of Rs300,000 per tanker and the condition that the product be supplied to the industry under the supervision of Customs Intelligence and district authorities, "which is highly questionable."
He argued that refineries, already struggling with the free flow of smuggled products, were facing increased penetration of those products into areas as far as Rawalpindi and Islamabad and even Peshawar. When asked for comment, Ogra in a statement said it had taken note of reports circulating in newspapers regarding slowdown in diesel purchases due to imports allowed to OMCs.
"Pakistan's reliance on imported petroleum products requires meticulous planning, often done two months ahead of time. Given the complexities of this process, some variation in supply and demand is inevitable," it stressed.
Ogra added that demand for diesel was influenced by several factors like fluctuating price trends, changes in purchasing behaviour of OMCs and varying demand patterns. Additionally, challenges such as porous borders also play a role in the overall planning and availability of fuel in the country.
"It is important to note that demand for HSD traditionally increases during the agricultural season, which coincides with the months of October and November. This seasonal spike in demand necessitates the import of additional HSD well in advance to ensure that the market remains adequately supplied," Ogra said. It pointed out that Pak-Arab Refinery Company (Parco) would be undergoing scheduled maintenance during October and November for a minimum of 45 days.
Parco contributes 50% of diesel (200,000 metric tons) and 47% of petrol (100,000 metric tons) to local production. To address the shortfall, Ogra highlighted, two major OMCs were instructed to import the necessary HSD volumes to maintain supply.