Oil commission

30 Jul 2020

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THE government’s decision to form a commission of inquiry to identify factors that had caused severe fuel shortages around the country in June and fix the responsibility for the crisis is a good idea. The commission is being established because the prime minister isn’t satisfied with the findings of the previous inquiries into the crisis that saw transport fuels disappear from the market for almost a month. Most petrol pumps across the country dried up because of supply chain disruptions while others were forced to ration fuel as motorists queued up to fill their tanks. It is being constituted on the lines of the one set up earlier this year to investigate the winter wheat and sugar shortages and will comprise officials from anti-corruption, intelligence and regulatory bodies. It will have powers to conduct forensic audits of the record, stock position, supply and sale of petroleum products of the entire supply chain.

The crisis began with the reduction in pump prices in May as global oil markets slumped, intensified in early June as petroleum stocks depleted, continued for one month and ended only when the single largest price increase ever was announced. In between, consumers suffered as the petroleum ministry first blamed the oil marketing companies, calling them a mafia, and later Ogra for not regulating the sector effectively, which led to a sudden eruption of the crisis and the pain experienced by motorists at the pump. Ogra was asked to investigate the shortage; it found OMCs involved in hoarding supplies and lightly penalised six firms for discontinuation and insufficient supplies at pumps. Yet the companies disregarded the directions to import new cargo to increase supplies, arguing that arranging fresh supplies at reduced domestic prices was not financially viable for them.

Unlike Pakistan, many oil-importing nations availed the opportunity arising from the crashing oil markets resulting from the pandemic-related global recession by increasing their oil reserves. But in Pakistan, domestic shortages resulted from poor governance and the petroleum ministry’s indecision on imports. The government is yet to determine ToRs for the proposed commission. However, the first task for it should be to examine the ministry’s capacity to predict the global oil market and domestic requirements. This is important because the ministry for unexplained reasons had ordered an embargo on oil imports in March and delayed approvals for imports when restrictions were eventually lifted in April. With the supply chain of petroleum products ranging between 45 and 60 days and sales rising by 82pc in June compared to April, the crisis was certain to surface even if domestic prices were not reduced. The ministry has also failed to ensure that OMCs maintain the mandatory oil reserves of 21 days. Pricing mechanism is another area for the commission to analyse. Unless governance issues at the petroleum ministry are resolved, such crises are likely to recur every few years.

Published in Dawn, July 30th, 2020