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Change The Outdated Petroleum Policy, Experts

The probe into the shortage of petroleum products is finally out six months after the the Petrol Crisis witnessed during June 2020, which was the second major one in a little over five years. It not only underscored the fragility of the country’s oil supply chain but more importantly highlighted lapses in managing the situation on the part of all stakeholders.

Private companies were held primarily responsible for crisis by OGRA which fined Rs 40 Million to six OMCs. The Report maintained that the shortage was artificial, thereby the PM has ordered action against the responsible stakeholders. In contrast, the report has been discredited and Industry sources also question the authenticity of information, assumptions made based on incomplete information and flawed statistical calculations leading to inaccurate outcomes.

A round table discussion was hosted by Islamabad Policy Institute (IPI) regarding the Inquiry Report. According to the press release, a senior expert on Thursday pointed out major anomalies in the report on ‘the June 2020 petrol crisis’ by the government appointed commission and cautioned that its “harsh” recommendations could hurt the downstream petroleum sector.

A close reading of the Report re-establishes certain main contributors to what happened during June 2020: the price movements in the international market (remember, we import 70% of our Petrol), the impact of Covid-19 on global and domestic consumption, the lockdowns and shutdown of tanker transport between Karachi and up-country, and the widening demand-supply gap due to declining local availability to name a few.

Islamabad Policy Institute’s Distinguished Fellow on Energy Sector Dr Ilyas Fazil, who has previously served as Member (Oil) at Oil and Gas Regulatory Authority and Chief Executive of Oil Companies Advisory Committee, was speaking at an in-house discussion on the report submitted by the 15-member Inquiry Commission on the petrol crisis. He noted that despite the effort with which the Report has addressed the subject, certain crucial angles that contributed to the June crisis were missing from the report.

In this regard, the IPI fellow specifically mentioned that the report did not, for instance, look into the delay in the conversion of White Oil Pipeline, which could have helped avoid the crisis. Similarly, he believed that there was little discussion about non-upliftment of Furnace Oil from local refineries and the decision about back to back major reduction in petroleum prices.

Moreover, Dr Fazil said the report also did not explain how the crisis could have occurred if 70% of the refined fuels market share belonged to the three of the top 10 oil marketing companies. In any market, it is a well established fact that if such a large percentage of the market performs as expected, it should be able to take care of market ups and downs. However, it appears that this was not the case and the report has missed an opportunity to critically look into this area.

“It seems strange that on one hand the report alleges presence of ample stocks that were deliberately withheld and on the other hand it has blamed the OMCs for not maintaining stocks in the face of import bans and delaying the berthing of their vessels,” he said while referring to what he saw as a glaring contradiction in the report.

Mentioning another inaccuracy in the report, Dr Fazil said it was claimed in Section 8.13, page 83 of the Report that a vessel ‘MT Ploutus’ which carried ~ 58,000 MTons for 7 OMCs was deliberately held back at the outer anchorage. Contrary to this assertion, he recalled that record of the affected OMCs’ and OCAC correspondence with Ministry of Energy’s Petroleum Division pleading for the berthing of the vessel had been shared with the commission.

Despite the requests in the said correspondence, the expert said, the permission was received from MoEPD on June 29, 2020, 14 days after the vessel’s arrival and after out of turn berthing of another OMC’s vessel.

“This obviously resulted not only in the onshore storages of the OMCs going dry but also prevented the movement of 58,000 Tons out of Karachi to feed up-country outlets. These facts have been totally ignored,” he said.

“The alleged impact of Rs. 2. Billion is hence utterly incorrect. On page 144, Section 21.11, the Report clearly states that a PSO ship was forced to discharge earlier by MoEPD by violating the priority queues for MT Ploutos confirming these facts on the one hand, but on the other hand strangely recommended that the ‘gains’ should be recovered from the OMCs,” he maintained.

“Did the OMCs whose product was on MT Ploutus not suffer demurrages and serious financial loss during the 14 days delay due to PSO’s Tanker? What was the pricing of the product on that vessel, which has not been recognized by the Commission and a simplistic calculation has been presented which defies the ground realities,” Dr Fazil regretted.

The IPI fellow believed that the recommendations given by the commission were “very harsh, uncalled for and unrealistic”. He feared that implementing those recommendations would adversely impact the domestic industry.

Addressing the newly constituted four member commission, which has been mandated to finalize the recommendations based on commission’s report, Dr Fazil hoped that mistakes would not be compounded by taking the proposed drastic action.

He said, “Let us plan ahead, have the right (and better) supply chain monitoring in place, address any anomalies that need addressing and bring the required changes to address the dynamics of today’s Downstream Sector which continues to rely on an outdated over two-decade old Petroleum Policy.”

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