60-day oil stocks planned to avert crisis

NCMC gives directive to accelerate work on strategic petroleum reserve framework

ISLAMABAD:

The National Coordination and Management Council (NCMC) has given the directive to expedite work on building strategic crude oil reserves by inviting oil-producing countries to meet consumption needs for 60 days and address Pakistan's energy-security concerns.

The directive comes in the backdrop of US-Iran war that has triggered fears of a looming oil crisis. Earlier too, the government had planned to build 60-day strategic oil reserves in 2006 but the plan could not materialise due to changes in political administrations and the lack of seriousness. Moreover, the strategic oil reserves framework also features plans to keep 30-day stocks of petroleum products. National Logistics Corp (NLC) has highlighted the importance of incorporating maritime infrastructure, storage facilities and the National Ports Master Plan into the overall mechanism.

NCMC directed NLC to draw up a uniform policy by evaluating and combining the policies prepared by it and the Petroleum Division.

At present, oil marketing companies (OMCs) and refineries keep 50% oil stocks. However, these are not strategic reserves but are for commercial purposes. OMCs are bound to maintain stocks for 20 days. Meanwhile, the government has estimated collection of Rs1.7 trillion on account of petroleum levy during the ongoing financial year. But the collection is being used to meet current expenditures rather than investing in strategic reserves.

The United Arab Emirates (UAE) has built strategic oil reserves in India. Pakistan had also allocated a piece of land to the UAE for establishing an oil city in Gwadar but several years have passed and no progress could be made. Under the proposed framework, the government will give export rights to those building the strategic oil reserves. Tax exemptions are also likely to be offered, especially for machinery imports.

Briefing the NCMC, the Petroleum Division presented the proposed Strategic Petroleum Reserve framework to meet energy-security needs. The framework envisages the development of reserves equivalent to 60 days of crude oil and 30 days of petroleum product consumption. Moreover, the Petroleum Division highlighted the progress on draft policies including bonded storage and refinery upgrades. Policies have been shared with all stakeholders for their input.

The government had formulated the 2023 policy for strategic reserves but it failed to attract foreign oil suppliers to set up bonded storages due to policy issues. Now, the policy is being amended to create a favourable environment for foreign suppliers. Earlier, the Petroleum Division briefed the Economic Coordination Committee (ECC) on imports via foreign suppliers by providing them customs bonded storage facilities. However, no foreign supplier has established bonded storages.

The ECC was informed that the vulnerability of Pakistan's energy security was exposed during disruptions to shipping traffic through the Strait of Hormuz. To cope with the challenge, the Petroleum Division is focusing on developing key pillars of energy security, including indigenisation and strategic storages.