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PSO sets sights on place in Fortune-500

November 28, 2012

—File Photo

ISLAMABAD, Nov 27: Pakistan State Oil plans to convert itself into a fully integrated energy firm starting from oil and gas production, shipping, refining and transportation and stop signing fresh contracts for furnace oil supplies for power sector.

“Within two years, PSO would become the country’s number one company, turn into a regional player in four years and become a global Fortune-500 firm in six years to trade internationally,” PSO Chief Executive and Managing Director Naeem Yahya Mir said at a news conference on Tuesday.

He said despite being the country’s largest fuel supplier and market leader, PSO currently operated in a very limited area of marketing where profits were saturated because distribution and marketing sector earned only less than 20 per cent of the entire supply chain.

Mir explained that oil and gas exploration companies earned over 60 per cent of profits as production cost hovered $1-$3 per barrel of crude oil that was being sold at $110 barrel per barrel. Shipment industry made another 8 per cent of the revenue, followed by 12 per cent by refining sector and 20 per cent by marketing and distribution sector.

He said the leading state-oil companies of the world like Petrobras, Petronas, Petrochina and Indianoil had become global players because they were integrated oil companies with control over the entire supply chain from crude and gas production to separation of liquid gas, LNG, exports through tankers and pipelines, supply to retail network, storage and refining.

He said PSO had decided not to enter into fresh contracts for furnace oil supplies because furnace oil was a waste of energy.

“Pakistan’s power sector is using 180cs fuel that is of very poor quality, not used anywhere in the world, despite losing up to $80 per ton. We have to convert to 380cs fuel that has better viscosity and output, by improving blending and ultimately setting up modern refineries,” he added.

He said Pakistan’s entire refining sector was obsolete and outdated that was developed in 1960s and their configuration was causing enormous losses to the country.

Pakistan’s refineries produced only 90 per cent value of the crude which needs to be dismantled and modified.

“We have to enter into entire supply chain from production to refining, shipment and transportation to reduce cost of production”, he said. Under the same model, the PSO had recently signed a contract with Pakistan National Shipping Corporation for a joint business model under which PSO would bring crude from abroad only through PNSC.

He said Pakistan imported 6.6 million tons of furnace oil, 3.5 million tons of high speed diesel and 1.5 million tons of motor spirit which would convert PNSC into a mega firm if it was able to cater to PSO’s shipments.

He said as an international professional, he did not mind if some people make money out of shipping business but this money should go into the hands of Pakistani companies and citizens instead of flowing it into the pockets of foreign firms and individuals.

Mir, who had worked Kuwaiti oil firms at senior positions for more than two decades, said Pakistan made a big mistake 15 years ago when it entered into contracts with Kuwaiti firms for delivery of oil in Pakistan unlike India that ensured delivery of oil at Kuwait ports and utilised its own, although poorly managed ships for shipment to India.

Resultantly, as Pakistan kept on losing foreign exchange to foreign firms for oil shipments, India developed its shipping industry to a stage that its professionals ruled the global energy firms.

“Recently PSO invited proposals for consultants and received four bids from top global firms all having Indian consultants”.

He said the PSO would set up its own refinery in Khyber Pakhtunkhwa where fresh discoveries of crude oil were coming up and establish a huge storage facility at Hub in Balochistan through a joint venture with a Middle Eastern firm for strategic diversion of oil supplies from Port Qasim where facilities were congested.

Responding to questions over recent deals for fuel supplies without tending and bidding process, the PSO chief claimed no violation of rules had been committed but said “the public procurement rules are bottlenecks and you need flexibility for faster development”. Explaining, he said the application of PPRA rules were benefiting only cartels of select players.

Giving two examples, he said he did away with application of ‘war premium insurance’ that was an unnecessary add-on insurance cost that should apply only in case of closure of the straits of Hormuz or India moved its forces to Pakistani borders which was not the case at present. This would provide a saving of about Rs450 million annually.

Likewise, four contractors were designing PSO contracts for a specific product of petrol involving additives like oxygenate that was not required in Pakistan.

He said he had removed the condition that would provide a saving of about 15 paisa per litre of petrol and Rs600 million per annum.

He said Pakistan imported low quality 87Ron petrol and paying extra premium on that despite the fact that better quality 91Ron petrol was available cheaper and more firms were ready to supply without premium.