ISLAMABAD: The oil-marketing companies (OMCs) and refineries have reached an agreement with the government for partial introduction of a high-grade petrol in the country at a higher price.

The government has been asking the oil industry to replace low-quality petrol — 87 Research Octane Number — currently in use with a better grade 92 RON which offers better engine efficiency and slightly lower carbon footprint.

The local refineries have been resisting the “expensive switchover” and have now been promised price compensation.

The two sides confirmed mixing of kerosene oil and jet fuels in the petrol, diesel and other expensive fuels because of price differential.

“It was, therefore, agreed that the kerosene price should be rationalised to discourage adulteration into HSD.”

Under the agreement, the 87 RON petrol would now improve to 92 RON while High Octane Blending Component of 95 RON at present would be replaced with 97 RON HOBC. All the OMCs will be allowed HOBC imports.

In view of the technological challenge, the government has now agreed to allow local refineries to continue with their existing operations, but marketing companies would be required to import high grade gasolines to upgrade locally produced petrol.

“Each refinery will opt for producing 87 RON/90 RON as per their own configuration and limitations,” a senior government official said, quoting an agreement initialed by the oil industry.

Except for Attock Refinery Limited in Rawalpindi – the only petroleum refining facility in the northern region – “all other refineries have agreed to produce 90 RON.”

This would be further improved to 92 RON with even better grade imports.

“The OMCs will ensure upliftment of local refinery product first as per the prevailing policy, irrespective of difference of RON,” added the agreement.

ARL would not change its configuration because it would incur an additional loss of about $75 per tonne of naphtha transportation and handling to Karachi for subsequent export.

“Producing 90 RON (for ARL) mean that its premier motor gasoline production will reduce by 12,000 tonnes per month and naphtha production will correspondingly go up,” the official explained.

The determination of new price for the high grade petrol – 92 RON – will be made on the basis of a new formula that encourages the industry to switchover. This will be called a penalty to the price. Freight on board (FoB) price differential between 95 RON and 92 RON will be divided by three. This will give the per RON penalty.

For 87 RON, the penalty will be five multiplied by each RON. For 87 RON, the ex-refinery price will be determined on the basis of import price of Pakistan State Oil, inclusive of all incidentals minus RON penalty and so will be the case for 90 RON as well.

The pricing will be done by the oil industry on the basis of monthly averages. The new product will be out in the market in July and would be reviewed in October 2016.

Previously, the oil industry had demanded to keep marketing the existing quality, for a few years, at the price of the superior variety so that oil companies could have adequate funds for technology up-gradation but this was not acceptable to the petroleum ministry, said an official.

“Pakistan has been using 87 RON motor spirit for the past 20 years while the world has moved on to higher RON petrol. In view of sharp reduction in oil prices, it is the best time for switching over to 92 RON premier motor gasoline (PMG) at the earliest,” Petroleum Minister Shahid Khaqan Abbasi told OMCs and refineries.

“Higher the RON, better the quality and engine performance and cleaner environment,” the minister said explaining that all the petrol pumps in the country were selling 87 RON petrol while HOBC was of 99-105 RON. The minister wanted to introduce 92 RON, commonly known as Euro-II gasoline across the country.

Some oil industry players wanted allowing petrol sale of three different qualities with 87, 92 and 95 RON (as was the case in India) with price differential for an interim period to allow various consumer groups to have a choice on purchasing power.

This was not acceptable to the petroleum ministry which believed it would lead to adulteration without giving a consumer the confidence if he/she was getting 87 RON for 92 RON price. A few hinted that some smaller players were already mixing jet fuel (Rs37 per litre) with petrol (Rs72 per litre) or benzene or kerosene with petrol because of taxation difference.

Pak-Arab Refinery (Parco) would start producing 92 RON by November 2017. National Refinery cannot produce 92 RON in the near future but would mix imported finished products to improve its RON.

Published in Dawn, June 14th, 2016