ISLAMABAD: The Oil Companies Advisory Council (OCAC) and the Directorate General of Oil of the Petroleum Division have warned of supply chain challenges and great financial loss to the oil refineries and state-run oil suppliers because of acute refining and storage capacity constraints as power sector backs off commitments.

The rare warning by the DG Oil came a day after the Federal Board of Revenue (FBR) claimed before a parliamentary panel on Wednesday that major reason behind surge in import bill was increase in the import of refined petroleum products which could not be curtailed because of higher demand despite price hike.

The DG Oil alerted relevant government authorities in an urgent warning that OCAC and refineries had repeatedly been highlighting their difficulties including through written communications on Nov 16, 22 and 24 that refineries were heading towards closures.

He said the local refineries were supplying over 11 million tonnes per annum of various petroleum products. However, “due to non-upliftment of furnace oil, owing to limited storages, the refineries are forced to reduce throughput and close the crude processing which will affect the availability of all the other petroleum products eventually disturbing the already fragile supply chain”, he wrote.

An official said the refineries were currently operating on average 60-65pc capacity and full capacity utilisation could significantly increase the production of refined products like petrol, diesel and jet fuels. Energy Minister Hammad Azhar had told Dawn on Wednesday that appropriate payments had been made to IPPs and power plants with the directions to uplift furnace oil from refineries and build stocks at their own storages.

However, the situation had not changed. The DG Oil said the OCAC in its letters had highlighted that OMCs were allowed to import light sulphur furnace oil (LSFO) and high sulphur furnace oil (HSFO) during July-November on the firm demand placed by Power Division but non-upliftment of the committed quantities by the Gencos/IPPs ensued stock build up at OMCs storages. Consequently, the upliftment of furnace oil from refineries was limited and stocks continued to buildup at refineries.

He said substantial payments were released to IPPs this year and one of the conditions was that power plants will keep mandatory stocks as required by their Fuel Supply Agreements with the OMCs. “Today (Thursday), all the storages of power plants are empty and IPPs are maintaining 2-3 days stocks in storages and on the other hand the refineries are planning to export FO at great financial loss. This export will cripple the already overburdened port infrastructure and industry will face huge demurrages as well”, the DG warned.

It reminded that at a recent meeting on fuel position presided over by Minister for Energy Hammad Azhar it was decided that the power plants will uplift FO for stock buildup and for consumption in case of exigencies. However, this has not happened so far.

It called upon the Power Division which also operates under the energy minister to direct the power plants to uplift furnace oil through Pakistan State Oil and Oil Marketing Companies “immediately for stock buildup and provide payments and letters of credit (LCs) to PSO”.

Interestingly, Member FBR Saeed Jadoon on Wednesday told the Senate Standing Committee on Finance that some of the big ticket imports were inelastic and unavoidable despite regulatory duties.

Published in Dawn, December 10th, 2021