ISLAMABAD, Oct 29: The government is reported to be planning to impose a new tax on petroleum products to collect over Rs30 billion for increasing the strategic oil storage to cover a minimum of 45 days of consumption. At present, the storage covers 21-day consumption.
A senior official at the ministry of petroleum when contacted said it would be too early to say how much and when the new levy would be made part of oil pricing. He, however, confirmed that the ministry was about to appoint a consultant to look into the requirement and aspects of the infrastructure, location and regulatory and financial aspects of additional storage capacity.
He said a lot of homework would be required to come up with a decision but one thing was clear that strategic reserves would be enhanced. This would need additional money to be generated from the public in one form or the other, he said.
The government would keep in mind the security needs and economic needs of enhancing storage for uninterrupted supplies, he added.
The official said the new levy would be required even if the oil marketing companies were asked to maintain inventory on compulsory basis because the strategic stocks would have two portions. First, significant additional investments would be required to construct new storage capacity and secondly, considerable amounts would be needed to build up the stockpile to cover consumption of up to 45 or 60 days. Financial implications like capital and operating cost, cost of dead inventory and levy on consumers would be decided after the consultant completed the report.
He said a similar proposal was put up by former secretary petroleum Abdullah Yousaf in 2002 following the heavy deployment of troops by India along Pakistan’s borders but was later shelved as peace prevailed. At that time, he said, the proposal was to put the additional income at the disposal of the ministry of defence to enable it to enhance its storage capacity.
He said the consultant would develop a methodology to assign the cost of strategic stocks to crude oil and different petroleum products and propose appropriate options for charging the levy on account of storage stocks.
Currently, storage facilities are owned and operated by oil marketing companies, refineries, major energy utilities and large consumers. There is also a proposal to convert a couple of obsolete and uneconomic refineries into full-fledged storages, an executive working with a multinational oil company said.
He said the industry was ready to cooperate with the government to maintain additional inventory but that would have a continuous cost to continue rolling over crude oil and product stocks in addition to initial investments for construction of new or additional storage.
He said Pakistan’s total operating stocks were about 21-28 days of national consumption for different products, compared with a 90-day minimum in most European countries.
The EU is now considering enhancing stocks further for using them for market intervention to minimise international spikes but it all depends whether Pakistan can also afford to do it.
With an annual consumption of about 15 million tons, petroleum products account for about 37 per cent of energy consumption in Pakistan, with about 90 per cent in the form of high-speed diesel and fuel oil. Only 15-20 per cent of liquid fuel supplies are met from local sources and the balance is imported in the form of either crude oil or finished products.
Currently, different petroleum products have their specific markets and unique consumption patterns and require varying levels of strategic stocks to offset the impact of any unforeseen disruption. The current petroleum products pricing structure does not include any margin for carrying out such inventories.
