The Pakistan State Oil (PSO) has warned of an immediate crisis of petroleum products in the country due to insufficient imports by several private oil marketing companies (OMCs) in the last few months.
In a letter written to the Petroleum Division — which, on a request of OGRA, had asked the state-run oil company to issue international tenders to for imports of products for other OMCs — PSO General Manager (supply) Asad R Faiz said: “Country’s products days’ cover is already at a critical level due to insufficient imports by several OMCs in previous few months which calls for immediate enforcement of licensing requirements for stock replenishment on the faltering OMCs”.
The letter comes to light a day after Energy Minister Hammad Azhar rebuffed media reports of Pakistan being left with only five-day stocks of petroleum products.
In a tweet on Monday, Azhar said that “the country has diesel and petrol stocks of more than one month. This is the highest stocks cover for many years. Some newspapers have carried a piece of news that only five-day stock is left. This is fake and contrary to the facts”.
The letter said: “It is because of this default that the days’ cover situation of such OMCs in particular and country, in general, has deteriorated by around five days considering the high demand for harvesting season is just around the corner. The SO general manager said that it is stated that “as per the OGRA Ordinance 2002 it is the primary responsibility of OGRA, inter a/ia, to foster competition and protect the public interest. The suggestions put forth by OGRA are not only anti-competitive but they also appear to be contrary to the public interest as it would most likely create supply chain-related issues due to which the general public would suffer. Even otherwise, the suggestions by OGRA would create legal implications.
“PSO currently has only one fuel supply contract under Government-to-Government (G2G) arrangement with Kuwait Petroleum Corporation (KPC) for supplies of Gasoil (HSD) and the contractual volumes with KPC are already fully utilized to cater PSO’s own requirement of market share which even otherwise are only between the parties thereto and the volumes under the same cannot be resold or offered to any other OMC,” it said. It said that due to PSO’s increased market share and additional unplanned consumption of HSD in the power sector in the months of January and February 2022, PSO had to procure two additional HSD cargoes through international tenders in the month of March 2022. For Motor Gasoline (MOGAS), PSO’s entire imports are through an international tendering system and there is no G2G arrangement in place.
“With regards to the suggestion regarding international tenders to be called by PSO for imports of products for other OMCs, as already mentioned in OGRA’s above-referred letter, the market situation is highly volatile with regards to product availability and like other OMCs, PSO also is going through the same strenuous situation. However, PSO being a responsible organization is still meeting its obligations and arranging products irrespective of commercial considerations and additionally bearing the rising huge circular debt,” the letter said.
“Though PSO has already awarded two (02) HSD cargoes in March 2022 in a timely and proactive manner through tendering process (in addition to three cargoes planned with KPC), however, due to international market situation, PSO did not receive any bids for its tenders opened for the delivery of HSD cargoes in the first fortnight of April 2022. Resultantly, PSO has again floated an urgent tender for the same period. Considering this situation, PSO is neither in a position to take responsibility for imports for other OMCs as this may also become a single point of failure for the country’s supply chain nor does PSO have the mandate or financial capacity. Moreover, due to increasing oil prices and huge PSO’s receivable under circular debt (currently at Rs464 billion), PSO is struggling in opening LCS for its own imports and there is no cushion at all to open LCS for others imports,” it said.
“We would also like to specifically mention that pre and post-Russia-Ukraine war, many OMCs are persistently defaulting on their import commitment, especially HSD despite discussed in various meetings (including PRMs from December 2021 to March 2022). Resultantly there is a shortfall in imports of HSD at least around 205,000 metric tons (MT) by these OMCs from January to March 2022.
“PSO has consistently highlighted this non-compliance in Product Review (PR) Meetings and has also cautioned regarding the risk to country’s supply chain in several PR and other meetings with OGRA. However, no positive outcome/action on part of OMCs has been witnessed to date which is exposing the country to the risk of dry-out,” the letter said.
Recovery of other OMCs landed cost is an entirely commercial matter and such ups and downs are part of doing business. There may be several occasions when smaller OMCs take the opportunity by importing and selling according to the price regime and earn windfall profits. A recent example is windfall profits being earned by almost all OMCs other than PSO through huge custom duty waivers on Chinese FTA MOGAS cargoes for last one and a half years wherein only PSO was being singled out and not provided a level playing field. Till date no action has been taken on this matter also,” the letter said
The letter further said: “All OMCs are responsible to meet their licensing obligations while OGRA’s role is the enforcement of licensing conditions irrespective of commercial considerations for smaller OMCs. Moreover, PSO already has procured two (02) HSD cargoes through international tendering for March 2022 at C&F premiums of 5.64 and 8.45 USD / BBL as per the market situation in order to meet the surging demand without comparing it with KPC’s premiums. Hence other OMCs should also act responsibly to procure products as per their demand, commitment in the PR meetings and licensing conditions rather than operating as opportunist traders. In case certain OMCs, which are not able to fulfil their obligations, we suggest OGRA take necessary action”.
“We fail to understand why certain OMCs are being given unnecessary protection despite their consistent defaults on their licensing obligations. If PSO can import from all over the world while complying with PPRA rules, we fail to understand why other OMCs have not been able to secure a diversified supply chain despite having no such compulsions/restrictions,” the letter said.
“The inter OMC sale in our opinion is against the public interest for the reason that it is anticompetitive. Secondly, even if PSO is forced to sell in the market, it will sell at full margin without jeopardizing its commercial interest. We would like to put on record that PSO has been under investigation on inter-OMC sales and was resultantly declared illegal by concerned authorities.”
