Notwithstanding Petroleum Division’s remonstration, the Economic Coordination Committee (ECC) of the cabinet last week allowed about 13 paisa per litre increase in port charges for oil products at Fauji Oil Terminal Company (Fotco).
This came at a time when the government also announced last week a 50 per cent cut in port charges for exports.
The ministry of maritime affairs (MOMA) had sought an increase in Fotco charges for high-speed diesel (HSD) be fixed at $1 per tonne in equivalent local currency, calculated on the basis of 7pc rate of inflation, to be incorporated in its pricing formula with retrospective effect from July 2012 and arrears of over Rs1.5 billion be recovered from oil marketing companies (OMC)/dealer margin. Likewise, the same handling tariff should be applicable on petrol through the existing pipeline till such time a dedicated pipeline is laid down by Fotco.
The tariff revision was justified on the grounds of over Rs150 million investments by Fotco — a joint venture of Fauji Foundation and Infraavest — a Singaporean entity. The revision in tariff was due to significant investment made by Port Qasim Authority on capital and maintenance dredging of the navigation channel and followed by regular maintenance dredging expenses.
The petroleum division pointed out that it was clearly decided in two inter-ministerial meetings that tariffs should be calculated in rupees and not in dollars
“Since draught level had increased from -11.5 meter to -13 meter, which enabled OMCs to bring large-size vessels, Fotco is, therefore, capable to handle 75,000 to 85,000 tonnes of oil cargoes compared to 50,000 to 65,000 tonnes previously,” the MOMA said adding resultantly, the country can save significantly in freight costs payable in foreign exchange by bringing larger vessels with increased cargo parcels resulting in lesser number of vessels throughout the year.
Moreover, revision in tariff was indeed essential to enable Fotco to meet operating and maintenance expenses, which were approved in the year 2000, for the period of 20 years, but not revised. In addition, the HSD pipeline system requires considerable capital costs for maintenance works due to the ageing and hostile marine environment.
The basis for the tariff increase was vehemently challenged by the Petroleum Division and Pakistan State Oil. “The statement regarding Port Qasim/Fotco’s capability to handle 75,000 to 85,000MT vessels lacks credibility, as due to inconsistent draft at berth and several issues in the channel, the importers are usually restricted to bring smaller cargoes even in the larger vessels. However, if Fotco and Port Qasim are sure about safe handling of above capacity vessels, they should officially announce/notify it to all the importers and vessel agents,” the petroleum division dared in writing.
The petroleum division also contested the argument that since the price of diesel, dealer commission and OMCs margins had increased over time, Fotco tariff should also go up. It said comparison with OMCs/dealers’ margins and IFEM (inland freight equalisation margin) is out of context and uncalled for, as port charges were not paid out of those margins but included in the import incidentals as a part of consumer prices. It said the additional impact of the revised tariff of 13 paisa per litre had a direct bearing on the general consumer and pricing structure and should be considered in that perspective.
“Tariff in dollar terms is categorically not supported as country’s exchange rate is highly volatile and devaluations of rupee would lead to undue benefit to Pakistan Qasim Authority and Fotco and unnecessary burden on the general consumer,” the petroleum division asserted.
The petroleum division pointed out that in two inter-ministerial meetings, it was clearly decided that tariffs should be calculated in rupee and not in dollars. “Even the Minister for Maritime Affairs was not in favour of it,” it said on the basis of minutes of the meeting. Moreover, it said Fotco had long ago recovered its initial investment and capital expenditure and any future stream on oil products should now be based on its operating expenses in the oil business only.
Also, a comparison of charges being paid at Karachi Port Trust (KPT) and PQA be kept in perspective. Based on the existing rupee-dollar parity and proposed $1 handling tariff, the port charges for HSD at Fotco (including wharfage and royalty) are five times higher than the port charges being paid at KPT. Similarly, port charges for petrol handling at Fotco on the same basis are double the charges payable at KPT.
It argued that even if the revision of handling tariff from the existing Rs18 per tonne to Rs78 per tonne was accepted, the revision in PQA royalty from the existing Rs3.5 per tonne to Rs78 per tonne was not justified. Based on these facts, the petroleum division argued that handling tariffs at Fotco be fixed at a reasonable level and necessarily in rupees as it will surely generate a burden on the general consumer.
More importantly, it argued that any revision of tariff could not be allowed retrospectively as it was against the law and could be recovered only by burdening the general consumer through the pricing mechanism. Also as PSO’s landed costs for imports had been part of the country’s product pricing (for both petrol and diesel) prior to September 2020, and even after this, PSO’s cost and freight premium and import incidentals were included in the local pricing of these two products.
Petroleum division did not oppose fixing petrol handling tariff at par with HSD tariff in rupee for the interim arrangement provided the new pipeline is laid down and all the arrangements for the handling of multiple products through one line would be at the risk and cost of Fotco including air pigging, nitrogen pigging worth about Rs2.5m per cargo and part of the Fotco tariff.
The ECC approved the revision in tariff for Fotco, locked for 5 years, to be paid in $1 equivalent Pak rupees but constituted a committee on the question of backdated recoveries with effect from July 2012 to June 2020.
Published in Dawn, The Business and Finance Weekly, September 13th, 2021