Oil firms make windfall profits, cause HSD shortage

Published May 4, 2020
PSO calls for action against the OMCs that did not meet the mandatory stocks cover. — APP/File
PSO calls for action against the OMCs that did not meet the mandatory stocks cover. — APP/File

ISLAMABAD: At the peak of wheat harvesting season, the supply chain of major petroleum products, particularly high speed diesel (HSD), has been seriously affected in many parts of the country as oil marketing companies (OMCs) allegedly played tricks for monetary gains on the basis of increase in tax rates on petroleum products as approved by the government on April 30.

Sources said on Sunday that some parts of Khyber Pakhtunkhwa, Azad Kashmir, northern parts of the country and some areas in Punjab and Sindh faced shortages at petrol stations on the first three days of May as sales pressure increased due to reduction in oil prices, relaxation in lockdown measures and higher demand in the agriculture sector for threshing.

The problem was compounded by low stocks kept by the OMCs at retail outlets in view of the imminent price reduction for May and leak of information from official channels that the government planned to increase petroleum levy, according to the sources.

Officials from the directorate general of oil and petroleum division also reportedly tinkered with the schedule of import orders and favoured their favourite companies in allowing “appropriate berthing of vessels”. As this was happening, the senior officials concerned and their political bosses were found wanting in keeping an eye on the emerging situation.

PSO calls for action against the OMCs that did not meet the mandatory stocks cover

Explaining the problem, an official said some oil companies offloaded their vessels on the last few days of April and paid petroleum levy at the applicable rate of Rs15.49 and Rs17.26 per litre on HSD and petrol, respectively, at the customs clearance point. However, they did not shift their products to their retail points and kept them stored in the white oil pipeline or their depots.

As a consequence, they were able to sell their products in May when the government increased petroleum levy to Rs30 and Rs24 per litre on HSD and petrol, thus earning a windfall of Rs14.5 and Rs7 per litre on the two products. This way they were able to make close to a billion rupees in a matter of days.

However, that was not all. Some companies purchased the products abroad in the last few days, when global prices had crashed to $15 per barrel, but they were entitled to much higher sales price calculated on the basis of the relatively higher price of PSO on its imports in earlier weeks at around $19-20 per barrel. Another windfall of Rs2 billion is estimated on this account.

This happened even though demand was forecast reasonably and quantities for import and upliftment from local refineries were allocated to all companies at the review meetings between representatives of the industry, relevant agencies and the regulator. The Oil Companies Advisory Committee — an organisation of OMCs and refineries — is reported to have complained to the government that decisions of the product review meetings had been changed unilaterally by some government officials who allegedly had close relatives working in selected companies.

On the other hand, the state-run Pakistan State Oil (PSO) has already reported “dry out situations” in parts of the country and has demanded investigation into the matter and even action against the OMCs that failed to meet their mandatory 21-day stocks cover and instead kept a stock of only 2-3 days that dried out immediately after the price change.

A spokesperson for the petroleum division on Sunday confirmed that high sales of petroleum products had been witnessed on the first two days of May due to sizeable reductions in the prices of the products for which petrol pumps did not make procurements from the OMCs.

The spokesperson said that sufficient stocks of petrol and diesel were available to cater to the country’s demand for 15 days. On the other hand, PSO said these stocks were of no use given that these were mostly at ports and storages and could not immediately serve the market.

The PSO has written to the government that its oil imports were cancelled by petroleum division officials despite warnings over possible shortages and its timely reports which said “a few major OMCs were not uplifting products from local refineries and not maintaining adequate days’ cover of products (particularly HSD) despite high sales trend”.

It said the stock levels of these OMCs kept declining throughout the month of April without any action taken against them, and resultantly, the industry is on verge of HSD dry out in peak harvesting season amid considerably high sales trend due to massive price decrease effective May 1.

The PSO said that due to very low upliftment from other OMCs, particularly of motor gasoline, PARCO and NRL went on shutdown and other refineries also kept running on very low throughput in the month of April. This has caused limited HSD availability from the refineries.

The PSO also brought on record that petroleum division not only allowed HSD imports to a few OMCs in the last week of April but also berthed their vessels in a prompt manner to keep adequate stocks in White Oil Pipeline (WOP) and upcountry.

“However, these OMCs did not make these cargoes available at upcountry, rather off-loaded at their Port Qasim terminals despite critical stocks in WOP, seemingly to exploit the expected PDL increase effective May 1, and earn hefty profits accordingly”.

Due to these critically low stocks of almost all major OMCs, excluding PSO, they did not operate their depots effectively and curtailed the supplies on May 1, despite the ministry’s clear directives on April 29 to operate depots and maintain uninterrupted supplies to the retail outlets. “It has been reported that major OMCs hoarded the product at main supply hubs, i.e. Mehmoodkot, Faisalabad and Machike,” the PSO said, adding that this resulted in a sudden and huge supply load that was transferred to PSO; its HSD sales on May 1 was around 34,000 tonnes which was not in line with the usual average of 10,000 tonnes.

Published in Dawn, May 4th, 2020

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