ISLAMABAD: The oil industry is seeking to include the impact of its foreign exchange exposure in the pricing of petroleum products in view of rising consumption, increased reliance on imports and abrupt currency fluctuations.
This is part of the new downstream petroleum policy 2018 which is currently being firmed up. At a meeting last week, the industry had also reportedly made a case for continuation of 7.5 per cent deemed duty on diesel refining and in some cases an increase to 9pc as opposed to a call by the Senate standing committee on petroleum to abolish the deemed duty.
Sources said import of finished products had put an additional burden on oil companies owing to foreign exchange availability and fluctuation and, therefore, should be worked out by the ministries of energy and finance to make it part of the pricing of petroleum products.
Rising consumption, increased reliance on imports and abrupt currency fluctuations cited as reasons
The meeting presided over by Asad Hayaud Din, secretary in charge of the petroleum division, was warned of serious supply chain consequences in the absence of a clear policy on utilisation of high sulfur furnace oil (HSFO).
It was reported that there was a crisis relating to non-utilisation of HSFO in October last year that led to almost closure of local refineries which annually produce about three million tonnes of HSFO.
Although there had been a strict policy not to import HSFO, recent developments showed Pak-Arab Refinery had only two days’ ullage in its tanks which could lead to supply problems.
On the other hand, the government has not been able to streamline import of liquefied natural gas (LNG) for the power sector despite availability of two import terminals having capacity of 1.2 billion cubic feet per day and yet significant gas shortages in the country. “There should be a forward looking predictability developed through close coordination of power and petroleum divisions about the demand and requirement of HSFO and LNG during the Nov-Jan period,” an official said.
Oil companies, including the Pakistan State Oil (PSO), said they would not be able to import HSFO on short notice if needed during winter months of low hydropower availability. A decision, it was put on record, had been taken in September last year to set up a committee comprising top officials of the petroleum and power divisions as well as the PSO and Oil Companies Advisory Committee on the subject, but the committee has yet to be operationalised.
The meeting also discussed the issue of increase in smuggling of petroleum products from Iran and the participants believed this would further go up in the coming days with re-imposition of US sanctions on Tehran as people across the border could resort to phenomenal dumping at low prices.
These policy adjustments should be made in the initial days of the new government for predictability over the next four years as the consumption of all petroleum products is set to go up. For example, the country’s petrol consumption is estimated to surge by 80pc to 14 million tonnes and the overall oil demand will increase by about 18pc despite a 65pc fall in furnace oil needs in five years. The demand for petrol currently stood at about 7.97m tonnes would jump to 14.17m tonnes in 2021-22, showing an increase of about 78pc.
On the other hand, the consumption of furnace oil is estimated to reduce by almost 65pc to 3.2m tonnes in five years from about 9m tonnes. In fact, the furnace oil consumption would drop to 3.2m tonnes next year and then remain flat at that level for five years due to diversion of power generation to imported LNG and coal. Fuel switch in the power sector is estimated to save about $2.5-3 billion per annum.
The demand for total petroleum products is estimated to increase from 27m tonnes this year to about 32m tonnes in five years, showing an increase of 17.5pc. High speed diesel will be another major driver for growth in consumption of petroleum products. Its consumption is estimated to increase by 46.4pc to 13.7m tonnes in five years from 9.3m tonnes.
The demand for kerosene and light diesel oil is also estimated to increase by 8.24pc each to 141,000 tonnes and 25,000 tonnes, respectively, in five years.
The deficit of petrol currently stood at 4.8m tonnes owing to insufficient refining capacity in the country will surge by 122pc by 2021-22. Likewise, the HSD deficit will increase from 3.9m tonnes to 6.3m tonnes, showing an increase of more than 62pc.
Published in Dawn, November 6th, 2018