December 24, 2002	Tuesday	Shawwal 19, 1423

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ISLAMABAD, Dec 23: The country plans to double its strategic oil reserves to two million tons over two years from the current one million tons.

Sources told Dawn that oil companies were directed last month and again around a fortnight ago to raise their reserves to 1.5 million tons, equivalent to 21 days of consumption, to face the eventualities arising out of a possible United States attack on Iraq.

The Water and Power Development Authority and the Karachi Electricity Supply Company were asked to increase their storage to 60-day consumption so that electricity rates did not go up unnecessarily in case of oil price increase, the source said. The US attack could impact the country in terms of supply and price hike.

The oil companies are boosting their reserves but Wapda is far behind the target. Its storage is hovering around 12-15 days consumption, they said.

The country has historically been maintaining 15 days of strategic reserves or one million tons but was warned last year by the relevant quarters that it should be raised up to 45 days requirement or there million tons before the privatisation of Pakistan State Oil.

It was, however, agreed that reserves should be raised in phases.

The oil companies are awaiting the government’s approval to a plan they want to implement to increase the reserves.

The infrastructure development for the increase could cost up to Rs4 billion.

One of the important suggestions of the plan is reduction in number of oil storage depots to 10 from 29. This will mean an increase in prices of petroleum products in far-flung areas.

The government has deregulated the oil pricing mechanism, which entails fixation of the rates by the marketing companies for the 29 central depots. As a result, prices at outlet level now vary by 10 to 40 paisa per litre in different areas on the basis of transportation cost.

The country’s current oil refining capacity is around 12 million tons while another 6.5 million tons are imported, that annually cost $3-3.5 billion.

A proposal is under consideration to enforce compulsory stock obligations on all oil refining and marketing companies for defence supplies. Imposition of a military surcharge on oil products to raise defence storages to up to 90 days requirement in the post-privatization situation, is also under consideration.

This was being seen as the only option to address concerns raised by the defence authorities that a PSO controlled by a foreign strategic investor could access information regarding the quantity of product and location of deliveries made to the military.

The nationality of the investor would, in that context, be the main factor in ascertaining the level of concern and sensitivity, the sources said.

“This information could be passed on to the parties outside Pakistan for interpretation and potentially the reason for military activity in a particular area be worked out,” a government official said referring to the military’s objections to the privatization of the PSO.

It is on the privatization agenda but its sale process has been delayed because of various reasons, including the restoration of civil government.

The only possible solution to the concerns in the wake of the privatization is to establish the military’s own supply chains and instruct the PSO and other oil marketing companies to deliver products to central stocking points, sources said.