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ONE can tell a story from different starting points. And the story can be told from the perspective of different protagonists; in which each one will embellish their narrative to make them feel they are better people than they really are. And that is the sense one gets from watching the protagonists of the oil shortage saga on prime time television.
One thing is for sure. The crisis did not begin with petrol pumps in Punjab drying up.
And it will not end with the arrival of vessels bringing fresh supplies. In fact we may not see the back of this crisis for a long time. But a story has been spun to prevent us from getting to the bottom of this malaise.
A story has been spun to prevent us from getting to the bottom of this malaise.
For now, PSO (and the petroleum ministry) has been made the fall guy. This story begins on Jan 1 when after the price reduction the demand spiked; it was not foreseen and neither had sufficient supplies been arranged for. The tipping point had arrived at which a couple of million motorists would switch fuel from CNG to petrol.
The story went on that the oil marketing companies (OMCs) were required to carry statutory reserves. They did not. And Ogra, the oil and gas authority, failed to regulate or enforce. Ogra should have realised that OMCs and dealers will skimp on buying and holding stocks in a falling market. To make matters worse, a refinery went out of action for four days. Consumers went into panic, the media fuelled the frenzy. And the shortage arrived.
For the sake of argument, let’s suppose PSO had been carrying three weeks of reserve. That the tipping point to switch from CNG had not arrived. The refinery hadn’t tripped. Was all else well? Would the crisis not have happened, even if a few weeks later? Would PSO’s cash flow position, its credit with banks and suppliers, its ability to sustain imports, have been in any better shape?
The story also does not explain why the furnace oil stocks depleted. Was there a spike in demand here too?
And this is where it starts running into problems of credibility. Surely there is more than is being told us.
Now with PSO as protagonist what is the story? Was PSO not crying out all of last year for its receivables due from the power sector to be paid because they were hampering its ability to import fresh stocks? How many times, in how many meetings and through how many letters was the issue raised?
Did the finance ministry and the cabinet’s Economic Coordination Committee not foresee an impending supply chain disruption? The finance minister has stated it’s not a “financial issue”. Right.
The country cannot import fuel because LC limits have been maxed out and it’s not a financial issue? What is a financial issue then?
So when they sat around the table, something had to give. A story had to be spun. One would be let off the hook. Another would apologise. A committee would be made as would a promise of fresh supplies in the days to come. End of story.
The character deleted from this story was the power sector. Furnace oil is what straddles the power and petroleum sectors. And this is really a furnace oil payment cycle crisis.
Furnace oil accounts for almost half of our fuel import bill. A third of all our electricity is generated by burning furnace oil. And while there is no crisis in other products which are sold on cash and on which PSO and other oil marketing companies make a neat profit margin, furnace oil is what causes them cash flow difficulties.
The previous PPP-led ruling coalition had pumped Rs1.5 trillion into the power sector to cover for losses caused by inefficiencies and theft.
But it could not muster the political capital necessary to undertake the painful power sector reform during its tenure, especially as oil prices were going through the roof. The present government injected another Rs500 billion at the start of its term into a sector that was hemorrhaging nearly Rs1bn a day. But because the root causes were not addressed, the hemorrhaging continued and it’s piled up again.
Apart from the inability to pursue reform there is another story about institutional breakdown. And yet another about the management style of this government. But I will leave these for later.
What will happen now? A tranche will be released. Some or all of the circular debt of Rs600bn will be settled. Petrol supplies will resume.
Furnace oil will also be procured on emergency basis. We will tide over the immediate difficulty without addressing the underlying malaise. Until another story develops. More on that later.
The writer is a strategist and entrepreneur.
Published in Dawn, January 21st, 2015
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