ISLAMABAD, Aug 3: The federal government has asked Wapda not to enter into long-term agreements with international suppliers for furnace oil imports beyond Sept 2003 to utilize the local production to the maximum.

A senior government official told Dawn on Sunday that Wapda’s direct furnace oil imports from international companies were resulting into low utilisation of oil refined by local refineries and causing them heavy losses.

The official said Petroleum Secretary M. Abdullah Yousuf had written a letter to Wapda Chairman Lt-Gen Zulfiqar Ali Khan informing that Wapda’s current agreement with foreign suppliers was sufficient to meet its fuel requirement till Sept and requesting that the utility should not enter into fresh long-term agreements after that period.

The managements of the local refineries had informed the federal government that because of Wapda’s direct fuel imports, their capacity utilization had dropped significantly which would ultimately reduce the production of other petroleum products as well.

In that case, the government would have to import more refined products from abroad with the additional foreign exchange spending, causing financial problems for the local refineries.

Wapda sources, however, said the utility was getting furnace oil imports at comparatively lower rates through long-term agreement of up to six months and it was not commercially prudent to purchase the product at higher rates even if it was available in the local market.

Secondly, the sources said, the local refineries could not meet the full requirements of the utility and in any case it had to go for import though the quantity might be lower. However, because of higher quantity, the utility was in a better bargaining position to get lower prices from foreign suppliers.

These sources said that the utility had been asking the petroleum ministry to ask the refineries and Pakistan State Oil (PSO) to be reasonable in charging freight and other port handling charges but they never paid any attention. Now the utility has made elaborate arrangements to import fuel oil at lower rates despite a Wapda-specific port handling tax.

The petroleum ministry is also considering referring the matter to the Economic Coordination Committee (ECC) of the cabinet to seek a way out because it has no influence over the petroleum imports after the oil imports deregulation in 2001.

Pakistan’s annual oil import bill is around $3.5 billion and major chunk of this amount is consumed by furnace oil consumption of over six million tons per annum. Wapda has started furnace oil imports independently from foreign suppliers in the aftermath of petroleum sector deregulation despite strong opposition from the Pakistan State Oil (PSO) that had a complete monopoly over furnace oil supplies.

Earlier, the local refineries were running on low capacity because of the surplus motor spirit production and limited storage capacity. The motor spirit is now exported at highly subsidised rates to keep the refineries running with maximum capacity utilization.