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ISLAMABAD: The government has directed the oil marketing companies (OMCs) to ensure sale of domestic petrol before placing orders for imported product to minimise loss of foreign exchange and misuse of inland freight equalisation margin (IFEM).

Senior government officials said the directive stemmed from reports that some of the leading OMCs were resorting to import orders for short-term individual gains at the cost of foreign exchange losses and additional financial impact on consumers.

The issue came up when local refineries were already struggling to cope with the government decision of October last year that banned import of furnace oil to ensure maximum utilisation of imported liquefied natural gas (LNG) and resultantly forced the refineries to scale down capacity utilisation because of topped up storage tanks.

They said the upliftment of all the petroleum products at the local refineries was a priority for the government and the OMCs were allocated import quotas on a monthly basis to make up for the demand beyond domestic production.

Move aims to minimise loss of foreign exchange on import of petroleum products

The product review meeting (PRM) is a forum comprising the oil sector regulator, the petroleum division, defence authorities and all the refineries and OMCs operating in the country that reviews consumption of petroleum products in the previous and current months and sets a quota for all stakeholders for the next month based on local products and import arrangements.

“All OMCs are once again directed to uplift the product(s) from local refineries as per committed / agreed volumes,” said a terse order issued by the ministry of energy a few days ago that asked the Oil Companies Advisory Council (OCAC) to ensure ‘strict compliance’ by all the OMCs.

The petroleum division said all the stakeholders had already been asked verbally at the PRM held in the second week of February on the complaint of Byco Refinery Limited to ensure upliftment of domestic products on priority.

“In order to maintain smooth operation of refineries, standing instructions have already been conveyed to the OMCs in the PRMs from time to time that local products be prioritised before finalising import of petroleum products,” the order said and noted that such complaints were now flowing from other refineries.

On February 20, the Rawalpindi-based Attock Refinery Ltd (ARL) also complained that it was confronted with a serious problem of “very high inventory” due to short upliftment by the OMCs. It said 55,000 tonnes of petrol had been allocated in February from Attock Refinery but the upliftment pattern from OMCs remained very depressed.

The company alleged that imported petrol was being moved into the area from Jhelum to Peshawar, Rawalpindi-Islamabad and Azad Kashmir and Gilgit-Baltistan) by OMCs despite availability of the product from ARL. “This is sheer violation of IFEM Rules as the end consumer is ultimately going to suffer due to additional freight involved,” it said.

The OMCs were earlier directed at the PRM to ensure upliftment of their quotas from the ARL and Byco so that refinery throughput remained at the optimum level in view of the demand of other petroleum products in the country and respective regions.

The ARL had warned that in the case of failure by the OMCs to drawdown their quotas, the refinery would be left with no option but to reduce the capacity utilisation which would not only impact production of petroleum products like high speed diesel, petrol, jet fuels and kerosene but also hamper crude intakes from the exploration and production companies.

The petrol and high speed diesel (HSD) are two major products that generate most of revenue for the government because of their massive and yet growing consumption in the country. HSD sales across the country are now going beyond 800,000 tonnes per month against monthly consumption of around 700,000 tonnes of petrol. The sales of kerosene and light diesel oil (LDO) are generally less than 10,000 tonnes per month

The consumption of petroleum products has been on the rise. According to the Oil and Gas Regulatory Authority (Ogra), the petroleum consumption registered a growth of 9.7pc (26 million tonnes) during the fiscal year 2016-17, compared to 5.2pc (23.7m tonnes) in 2015-16. The main drivers of increased consumption were transport and power sectors with 12pc and 10pc, respectively.

Consumption of petrol in the transport sector saw an increase of 16pc due to the growing number of motorcycles and cars. Similarly, consumption of HSD grew by 10pc, mainly because of higher utilisation by the transport sector, indicating increased economic activities in the country.

The transport and power sectors consumed almost 90pc of total petroleum oil lubricant (POL), sharing 57pc and 33pc, respectively. Local demands for HSD, petrol, furnace oil and jet fuels are mostly met through imports — 73pc petrol, 69pc furnace oil, 46pc HSD and 14pc jet fuel — as domestic production is not enough to meet the requirements, according to Ogra.

Published in Dawn, March 5th, 2018