ISLAMABAD: The Ministry of Energy (MoE) has sought formal approval of the Economic Coordination Committee (ECC) of the Cabinet to introduce fuel markings in oil products, starting with kerosene, to control adulteration.

In a summary sent to the ECC, the Petroleum Division of the MoE has reported that introduction of fuel marking system in kerosene would increase its price by Rs1.22 per litre that would be paid to a single bidder — Authentix — from the United Kingdom. The ECC led by Prime Minister Shahid Khaqan Abbasi is expected to take up the issue for approval early next week.

Sources close to secretary petroleum said a total of six companies — four from UK, one from Singapore and one local firm of German origin — were requested to bid for the project for one year but only two responded with pre-qualification documents and only one firm submitted formal bid which was accepted.

Consumers to pay additional cost for marking system

After the successful completion of kerosene marking system, the programme will be expanded to all other products followed by local refineries and marketing companies, which will introduce fuel markers and charge the additional cost to consumers, the summary suggested.

Secretary Petroleum Sikandar Sultan Raja said the annual local production of kerosene stood at about 140,000-150,000 tonnes for domestic consumption. The fuel is not dyed.

The present price differential between kerosene and high-speed diesel (HSD) is approximately Rs31.40 per litre, which provided ground for adulteration in HSD by adding kerosene. This not only reduced the availability of kerosene to the intended beneficiaries (the poor man) but also significantly impacted revenues as the government is charging almost 40pc taxes on HSD compared to almost negligible tax on kerosene.

Therefore, Shahid Khaqan Abbasi before becoming the prime minister had decided to introduce Fuel Marking Programme (FMP) in a phased manner to discourage fuel adulteration and tax evasion. It was decided to mark primarily kerosene and then moved on to other fuels such as HSD, light-diesel oil (LDO) and petrol.

M/S Authentix, UK was the successful bidder with quoted cost of Rs1.22 per litre for the fuel marker of marked product for six months trial period and then offer three paisa per litre discount for another six months.

Kerosene specifications are reported to have been revised in consultation with the oil industry and it was decided to make it “blue dye” to avoid adulteration in other petroleum products.

The ECC has been asked to approve kerosene marking with the issues pertaining to adulteration and quality maintenance for petroleum products to be monitored and supervised by the Oil & Gas Regulatory Authority (Ogra) at all stages.

The secretary recommended that Oil Companies Advisory Council (OCAC) be authorised to execute the contract with the successful bidder and liaise with the representatives of the government agencies and others for successful implementation of kerosene marking programme under Ogra supervision.

The additional cost of Rs1.22 per litre for fuel marking allowed for inclusion in the ex-depot sale price of kerosene through existing monthly pricing mechanism.

Initially, the FMP has proposed to be implemented for one year, and then depending on efficacy of the programme it will be extended or revised with fresh tendering.

Ogra will be required to ensure that kerosene is marked before leaving refinery premises and may independently inspect the quality of HSD and petrol with the help of Hydrocarbon Development Institute of Pakistan (HDIP) or other third party inspectors at different stages of the petroleum, oil and lubricant (POL) supply chain ie local refineries; OMC deports and retail outlets.

Also for deregulated fuels, oil companies will be directed to arrange fuel marking services out of their margins and Ogra to carry out field testing and other related activities.

During the bidding process, Ogra had declined to be part of a technical committee on the issue of conflict of interest. Likewise, the HDIP expressed concern that it was not made part of the technical committee at a proper stage and instead co-opted at the last leg with the opening of single technical bid.

Therefore, kerosene has a negligible revenue impact because of its limited market.

In contrast, HSD sales across the country are now going beyond 800,000 tonnes against monthly consumption of around 600,000 tonnes of petrol. The sales of kerosene and LDO are generally less than 10,000 tonnes.

Published in Dawn, November 18th, 2017