ISLAMABAD: The shortage of petrol affecting parts of Punjab slightly receded on Sunday after some private oil marketing companies (OMCs) were compelled to release their stocks or face penalties and cancellation of their licences. It is, however, feared that the shortage may surface over the next few days.

A senior official in the petroleum division of the Ministry of Energy told Dawn that private companies were holding back their stocks to secure inventory gains in anticipation of an increase in the prices of petroleum products due on Sept 30. The problem was compounded by an ongoing low stock position averaging 6-7 day coverage for almost two weeks that led to a crisis-like situation in many parts of the country, including Lahore, between Friday and Sunday.

Most of the OMCs had stopped product sales, diverting motorists to the state-run Pakistan State Oil (PSO) where long queues were seen on Saturday. Sources said that while Shell Pakistan had become cautious in its imports, supplies and sales following the tragic tanker accident of Ahmadpur East, other firms stopped sales to earn windfall profits by keeping low-priced stocks for a few days and then selling it at higher rate after Oct 1.

Oil marketing companies holding back stocks to secure inventory gains in anticipation of increase in prices due on Sept 30

The sources said that Shell was required to import about 90,000 tonnes of petrol this month, but it imported 50,000 tonnes. Attock Oil was required to import 30,000 tonnes, but it was able to import around 10,000 tonnes. Almost similar trend was noted in respect of other OMCs, despite their commitments with the government under a monthly product review.

As a consequence, the entire supply pressure shifted to the PSO that struggled to cope with the situation despite 20-25 per cent higher imports this month and higher sales than its market. The company had its own financial limitations while sitting on a receivable stock of around Rs295 billion, sale quota and logistic constraints.

In Lahore alone, PSO’s petrol sales are reported to have touched 1.1 million tonnes over the past few days against its average normal sales of 500,000 tonnes per day.

The sources said the PSO had warned the federal government of looming shortages in the last week of the current month that could spill over to the first week of next month owing to a supply quota imposed by the erstwhile Ministry of Petroleum. The PSO has been asking the government to lift this sale-capping.

In a letter to the petroleum secretary, the PSO is reported to have said that it would not be able to sell product beyond a certain level unless the government lifted sale-capping, but the petroleum division has been sitting on the request for almost a week.

Under the sale-capping enforced by the petroleum ministry, the oil marketing companies were required to maintain a fair sale quota throughout the month to ensure there was no blackout or oversupply of any product. The plan meant the sales of first three weeks of a month would be maintained in the fourth week by all OMCs, irrespective of international prices going up or down.

“If the sale-capping is not lifted by Monday, there could be serious problems in terms of product shortages,” said an executive at the PSO, requesting anonymity.

Penalties for non-compliant firms

The sources said the petroleum division and the Oil and Gas Regulatory Authority (Ogra) at a weekend meeting on the shortage situation considered imposing heavy penalties on non-compliant firms for slowing down sales or lower than committed imports, but Ogra took the stance that product coordination was still a responsibility of the petroleum division which called product review meetings, even though the government had decided to transfer the responsibility to the regulator about two months ago.

It was informed that procedural and legal requirements had not yet been completed to transfer the responsibility to Ogra. Nevertheless, both Ogra and the directorate general of oil swung into action and warned the smaller companies to release their stocks to the market in line with their sales ratio in the first three weeks or they would be proceeded against.

But all this exposed the inability of the authorities to ensure reasonable stocks as they struggled with consumption spike, fewer imports and transportation challenges amid chronic circular debt.

Petrol stocks have remained between six and nine days for almost two months as the supply chain struggled to build stocks amid rising demand and logistical constraints, starting from ports to crucial distribution points. Furnace oil stocks were also on the lower side but enough for 11-14 days of coverage for power plants. Kerosene stocks were even lower but involve little concern because of its very limited usage.

The stocks of all the products were significantly less than mandatory minimum 21-day consumption coverage. There was no apparent problem with high speed diesel, the most strategic product for heavy transportation, as its stocks were in safe zone.

This was despite the fact that the country had faced a historic supply chain disruption of petrol in January 2015, causing transportation problems to the public and came amid low international oil prices.

The law required OMCs to have a minimum of 21-day coverage of all products at all times, in addition to strategic reserves for the armed forces, under the law, and the petroleum division and Ogra were responsible to ensure compliance.

The petrol consumption in August this year surged to 680,000 tonnes against last year’s 548,000 tonnes, showing an increase of 24 per cent.

Published in Dawn, September 25th, 2017