Refineries face closure as oil marketing companies reluctant to pick up stocks

Updated 08 Apr 2020

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KARACHI: Oil tankers are parked outside a refinery in this file photo. None of the oil marketing companies have adequate stocks, particularly high-speed diesel which could lead to a shortage in the upcoming wheat harvesting season, say Petroleum Division officials.
KARACHI: Oil tankers are parked outside a refinery in this file photo. None of the oil marketing companies have adequate stocks, particularly high-speed diesel which could lead to a shortage in the upcoming wheat harvesting season, say Petroleum Division officials.

ISLAMABAD: Amid wheat harvesting season, the government has asked the Oil and Gas Regulatory Authority (Ogra) to take action against oil marketing companies (OMCs) for their reluctance to uplift petroleum products from refineries, resulting in serious supply problems.

A senior government official told Dawn that there are more than 80 OMCs operating in the country but none of them are maintaining their mandatory stockpiles to avoid inventory losses in the wake of depressed sales and lower prices.

This is resulting in increased pressure on state-run Pakistan State Oil which is also finding it difficult to maintain its mandatory stocks at various locations across the country even though its overall stocks are well above its 20-day mandatory cover. The situation in case of smaller OMCs is more pronounced in rural areas where wheat harvesting is now entering full swing.

Taking advantage of the situation, officials said unscrupulous elements are making it difficult for farmers to have direct access to transport and godowns. The middlemen, as a result, procures wheat produced from farmers at prices lower than set by the government.

Taking notice of the situation, the government has asked Ogra to exercise its relevant power and enforce mandatory stock requirements on all OMCs. “Despite lockdown around the country, higher sales of petroleum products have been witnessed since April 1”, noted the Petroleum Division in a policy note to the regulator.

It said “except the Pakistan State Oil, none of the OMCs are carrying satisfactory stocks, particularly high-speed diesel (HSD). Further, OMCs are not lifting products from refineries due to financial gain/loss”, the division said.

This is forcing “the Attock Refinery, Pakistan Refinery and Pak-Arab Refinery Company (Parco) to the verge of closure while National Refinery and Byco Petroleum Refinery have suspended their operations”.

It is unfortunate that storage of the refineries are full to capacity and their operations are coming to a halt but OMCs are shying away from their responsibilities under licensing and marketing rules to uplift products and maintain mandatory stock positions, an official added.

In view of the above, there is a chance of possible shortage of HSD in the country during the upcoming harvesting season. “Therefore, to avoid untoward situation, Ogra being regulator is requested to monitor the performance of OMCs and direct them to maintain 20-day mandatory stocks at their depots failing which, punitive action may be taken against defaulting OMCs in order to ensure smooth operations by refineries”, the Petroleum Division advised the regulator.

The consumption of petroleum products has fallen by more than 60-70pc as public and private transport came to a standstill following lockdowns announced by the provincial governments to keep their citizens indoors.

Even the railway passenger traffic was stopped and freight movement drastically reduced as the need for movement of oil products declined. Subsequently, the Pakistan Railways only left with transportation of coal and few other commodities, said an official.

Officials said the petrol and HSD consumption had dropped by 60-75pc respectively over the last two weeks. The HSD consumption has suffered more than petrol, he added.

Giving an example, the official said a popular station which used to sell 30,000 liters of petrol a day in normal days is left with sales of just 8,000 liters a day while its HSD sales had plunged from 15,000 liters to 150-200 liters per day. The monthly aggregate numbers are being compiled.

As a consequence, major refineries had either closed down or are operating at 25-30pc capacity utilisation because their storages were full to capacity and the OMCs are unable to uplift petroleum products due to negligible sales.

Byco Refinery and Pakistan refinery have already closed down while Attock Refinery is operating at about 20pc capacity and may come to a halt by this weekend. Parco refinery is also currently operating at a minimum level.

Published in Dawn, April 8th, 2020