ISLAMABAD: Amid reports of the misuse of China-Pakistan Free Trade Agreement (CPFTA), the government on Friday ordered all oil marketing companies (OMCs) to provide evidence-based data on the import of petrol from China.

Under the CPFTA renegotiated in 2019, the government had issued statutory regulatory orders on Dec 31, 2019 that abolished tariff on import of petrol. As such, there was no customs duty on the import of petrol from China with effect from Jan 1, 2020. Normal petroleum imports from all other sources, mostly the Middle East, attract 10pc customs duty while similar deemed duty is applicable on production from local refineries.

This results in a price saving of about 10pc on petrol imports from China. However, this price differential is retained by the OMCs as windfall profit instead of its benefit to the exchequer or the consumers. Depending on the international petrol price published in Platt’s Oilgram, the gap normally works out between Rs9-12 per litre.

OMCs ordered to provide two-year buying data under CPFTA

“It has been observed that a number of OMCs have imported motor spirit [petrol] from China under the CPFTA,” said the Ministry of Energy in a letter to Oil Companies Advisory Council (OCAC), an umbrella association of about two dozen refineries and oil companies.

It asked the OCAC to ensure that the OMCs provide complete details of their petrol imports for the last two years, starting from Jan 1, 2020 to Jan 1, 2022 within 10 days. Complete details have been sought about the name of cargo, port of origin where the product was loaded, quantities in litres, offloading port along with the date of decanting and the customs duty paid.

Interestingly, the key purpose of the free trade agreement signed on April 28, 2019 was the promotion of fair trade competition.

China itself is a net importer of petroleum products including petrol and transportation cost to Pakistan is relatively higher than that of the Middle East. Yet this provides a substantial cushion to the OMCs. The current position under the CPFTA is valid for four years – starting Jan 1, 2020 to Dec 31, 2024.

This happens despite the fact that local refineries had been crying over low capacity utilisation throughout the year, and at times complete closure of their refining facilities, mainly because of higher import of petroleum products. Three out of five local refineries have stopped operations over the last couple of weeks.

Last month, the local refineries had told the government that domestic production of petrol and high-speed diesel (HSD) could potentially go up by 60pc and 48pc, respectively, at a significant foreign exchange saving provided the local refineries were operated at optimum capacity.

The oil import bill, particularly of refined petroleum products, has been the largest chunk of about 83pc increase in imports in the first five months of the current fiscal year, causing unrest among the government ranks as money and share markets plummeted last month.

The local refineries had been agitating their operational challenges because of lower furnace oil off-take by power producers despite their extremely low storages than contractually required and large import quantities of both petrol and diesel by OMCs.

Published in Dawn, January 15th, 2022

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