Forewarned: Petrol crisis brewed as officials looked the other way

Demand began surging in October, but complacency about building reserves led to crisis

KARACHI: Two months before petrol evaporated from fuel stations in Punjab, creating a public-relations crisis for Prime Minister Nawaz Sharif’s government, a senior official had raised alarm about the possibility of an impending petrol shortage if the government did not take action.

On November 6, 2014, the petroleum ministry’s Director for Logistics and Marketing Abdul Hayee Baloch told the oil marketing companies (OMCs) to build up their inventories of petrol because of a surge in demand, according to documents made available to The Express Tribune.

“The director L&M expressed concern over low MS [petrol] stock in the country and said that actual sales throughout October 2014 was around 10% more than the forecast,” participants of the Oil Companies Advisory Council (OCAC), an industry group, were told in the monthly meeting held to review supply and demand position of petroleum products.

Compared to demand in the same month of 2013, this was a 29.2% surge, which could have exhausted the stock with OMCs completely in a few days if sales had not tapered off at the pumps. By the time the OCAC met in early November, the companies were already seeing ‘unprecedented’ increases in sales.

Days before the meeting, the government had cut price of petrol to Rs94 a liter, the first time it dropped that low since August 2012.  The result was catastrophic.

Storage tanks in the country were carrying petrol reserves for just six days and Baloch was pushing the Pakistan State Oil (PSO) to arrange for an import vessel before November 12. But then, without warning, consumer patterns shifted and instead of using more petrol, consumers cut spending, taking sales for November 2014 down 4.8% compared to October.

This drop in demand appears to have resulted in complacency on the part of the oil companies. When the OCAC met again on December 4 to take stock of previous month and plan imports for future, there was far less worry about a possible surge in demand, at least according to the minutes of the meeting.

An upsurge in demand was noted following a further cut in price by Rs10 to Rs84.50 a litre on December 1 but no measures were announced to ensure stocks did not run out. Meanwhile, cars were lining up at the pumps to fill up tanks to the full. And this time, the demand surge was sustained throughout the month, going up 11%.

In the same December meeting the PSO raised its own red flag. Its receivables, the money stuck in overdue payments from the power sector, had surged to Rs212 billion. Baloch, who chairs these meetings, requested private OMCs to help the PSO by importing the product to avoid a shortage.

The next meeting held on January 8 discussed the problems the PSO was facing in getting credit from banks, which were demanding at least Rs52 billion of its outstanding dues before they would allow any more credit. Yet despite these major outstanding issues, the only concern showed by the OCAC members during the meeting was about temporary shutdown of the Pak-Arab Refinery (Parco) – which was something that had the potential to change the entire demand-supply situation in a matter of days.

Over the past few years, Pakistan has become a much bigger importer of refined petroleum products. The trend started around December 2008 when cars began switching back to petrol due to shortages of compressed natural gas (CNG). From just 0.24 million tons imported in fiscal 2009, it jumped to 2.19 million tons in the fiscal year which ended June 30, 2014. In six months to December 2014, the country has already imported 1.3 million tons.

Domestic refineries now meet just 40% of the demand with Parco contributing half of it. The repercussion of so much of the supply not coming to the market was soon felt at the pumps.

On January 2, the petrol stock in the country was just enough for 7 days – much less than the 20-day threshold set by the government. Industry experts say that increase in appetite for petrol should have been anticipated by all those attending OCAC meetings considering the gradual uptake in sales.

“Yet there was no one to actually point that out. It should have been obvious that with such a tight supply, a slight problem could lead to a crisis,” said an official who does business with leading OMCs.

Published in The Express Tribune, February 2rd, 2015.