ISLAMABAD: Amid controversies swirling around petroleum crisis and pricing, the Oil and Gas regulatory agency (Ogra) has found fault with official handling of the demand and provide a mechanism, resulting in countrywide shortages, hoarding and black marketing of oil by market players.
In a detailed report submitted to the federal cabinet, Ogra also challenged the position of the Ministry of Energy Petroleum Division (MEPD) that because the regulator had been liable for ensuring 20-day stock in the least times. The regulator quoted a series of rules and laws to say that maintenance of stock and smooth supply throughout the country was the responsibility of the petroleum division and therefore the director-general oil under the MEPD.
The regulator has also attached a variety of its communications to the MEPD, warning and highlighting the build-up to the availability crisis and the way chronologically the office of directorate general oil (DGOil) had been changing various decisions. The report also contains an updated status on implementation of the cupboard decisions on June 9 during which Ogra had reported penalties imposed on nine oil marketing companies (OMCs) for violation of rules.
The report said the petroleum secretary was on March 20 clearly showed petrol stocks for 15 days and diesel for 43 days with advice for “instant deciding regarding demand/supply”. On Annunciation, the MEPD asked all OMCs and refineries “to cancel their planned imports”. The very next day (March 26), the MEPD moved a summary which was approved on March 27 by the cupboard Committee on Energy (CCoE) to rationalize oil imports, closure of three Karachi-based refineries and curtailing production to 60-70 percent of local crude by Parco and Attock refineries.
This was avoided Ogra’s participation or comment. supported the CCoE decision, the operation of three refineries was stopped while imports were already banned, thereby curtailing the country’s supply sources.
On April 4, the MEPD reported to Ogra that OMCs weren't uplifting products from Attock, Pakistan, and Parco refineries which should be asked to “maintain 20-day mandatory stocks of HSD [high-speed diesel] to satisfy the demand during harvesting season”. On April 6, all OMCs were asked to uplift products from refineries and build the specified stocks. an equivalent day, all refineries were asked to work at 60-70pc throughput to satisfy higher demand, particularly of diesel as imports were already banned.
Ogra said it placed on record on April 10 its “reservations” over sharing of the CCoE summary after the choices had already been taken and acknowledged “contradiction within the decision taken by CCoE on MEPD summary to work with two refineries and a fresh decision taken by MEPD to work all refineries”.
The MEPD acknowledged Ogra’s concerns on April 16 and appreciated the latter’s actions for mandatory storage/stocks and said the choices questioned by Ogra were taken to rationalize all operational issues concerning oil supply and logistic chain and it had been no final judgment to work Parco and Attock only but had since been ratified by the cupboard, hence final. Both the MEPD and Ogra pursued the market players to create mandatory stocks.
On April 28, the MEPD lifted the ban on import of diesel and petrol with the condition that importing OMCs also will uplift 20pc of their cargoes from local refineries. This decision was also not conveyed to Ogra.
On May 28, the MEPD moved a summary to vary pricing mechanism and sought postponement of price change from June 1 to June 16 to supply “an incentive to OMCs to import product at current PSO price and thereby avoid inventory loss”. Ogra opposed the proposal subsequent day because it believed the “prevention of inventory losses are going to be at the expense of national exchequer/consumers” and it might put a national company — Pakistan State Oil — at disadvantage in following procurement rules.
On June 2, Ogra reported the stock position and urged the MEPD to urge the schedule of imports and native production under the May 13 decision by the merchandise review meeting changed and aligned to reply to plug demand and ensure sufficient stocks and uninterrupted supplies. It also asked the MEPD to rearrange additional cargoes for imports to mitigate things.
Citing a series of rules, law, and evidence, the regulator said: “It is crystal clear that as per applicable policy and law/rules, MEPD holds the exclusive responsibility to anticipate any such situation and take the remedial measures i.e. increasing local refineries’ production up to maximum and ask/ensure additional imports by OMCs to avoid the crisis”.
Moreover, the import of petroleum products was “patently a policy issue involving exchange, which exclusively rests with the federal of Pakistan i.e. the Ministry of Finance and line Ministry of Energy & Petroleum Division”, Ogra noted.
It said that under rule 7 of Pakistan Petroleum (Refining, Blending and Marketing) Rules, every refinery was required to submit its half-yearly production program to DGOil of the MEPD which had the powers under rule 8 to approve such a program or change it, if required, under rule 9. Under rule 10, the goal is additionally to manage the refineries to process petroleum or feedstocks from domestic or foreign sources.
Under rule 13, the goal is additionally to specify and ensure the maintenance of petroleum stocks by refineries and products by OMCs under rule 30A. Rule 30B empowered the DGOil and therefore the MEPD to “access the deficit volumes of petroleum products and assign to OMCs specific volume to be imported to satisfy the demand”.
Also, it placed on record that the MEPD regularly holds product review meetings every month with all stakeholders — OMCs, refineries, Ogra, power plants, PIA, Railways, etc — “as MEPD is that the authority for ensuring the merchandise available within the country”. The meetings review all the aspects and assessments — local production, carryover stock, change in consumer behavior, etc — then finalize “the Product Import Plan that includes details of every and each ship, cargo, date of arrival”, which is approved by the DGOil.
Ogra’s responsibility was limited to the creation of storages by companies before allowing them to market and sale of products. The regulator said the country had a complete storage capacity of 1.45 million tonnes of petrol and diesel and almost half that (751,000 tonnes) storage capacity had been built over the last four years with an investment of Rs75 billion.
The responsibility of filling this storage capacity with product stock for 20 days was the responsibility of the MEPD. “Neither it's the mandate of Ogra to stop/curtail local refineries’ production or to ban imports, nor there exists any decision of Ogra during this regard whatsoever,” the regulator concluded, putting the whole blame on MEPD for the petroleum crisis.
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