ISLAMABAD   -  To address the issue of excessive stock of high-speed diesel (HSD) in the country, resulting from the influx of HSD through smuggling and special import permission by Ogra, the regulator has advised Pakistan State Oil to reassess the contractual quantities imported from Kuwait (Kuwait Petroleum Company) under G to G arrangements. A meeting was convened on Wednesday by Ogra with representatives from refineries and top-performing oil marketing companies (OMCs) to discuss and adopt a strategy to address the issues of high-speed diesel (HSD) stocks with the refineries and in the country.

The meeting was informed that leading importing OMCs’ September cargo has been deferred and three cargoes in October are to be rationalised/cancelled. December cargoes shall also be cancelled (if required) in the due course of time. The cargo already arrived shall be put into bonded storage so that the same is not available for sale till end of September. Meanwhile, a letter written by Ogra to Director General Oil said that as per the OCAC daily fact sheet reports 759,256 metric tons diesel stock as on 30-8-2024 instead of 770,000 metric tons reported by refineries that too inaccurately includes 94,443 metric tons of line fill, which is not available for sale.

The correct figure, the actual stock of HSD as of August 30, 2024, stands around 664,813 metric tons, sufficient to meet 44 days of national demand. In this regard, PAPCO has been advised for correction in their reporting sheet. In light of the current situation, OGRA has taken the following corrective actions, aimed at easing the pressure on the refineries. The letter said that GO petroleum which was advised to reroute its cargo or hold it at the outer anchorage until the last week of September, is now being advised to keep its product in bonded storage until the third week of September 2024. This measure is aimed at easing the pressure on the refineries and for avoiding demurrage costs. The letter said that PSO has deferred its one cargo of 55,000 m tons for September, 2024 and is also considering reviewing the December plans.

The letter said that PSO is currently holding an inventory of diesel, approximately 336,000 metric tons, constituting 50% of the total stocks. Rule 35(g) applies across the Go regardless of the size of the company or group. However, PSO is bound by government-to-government agreement with KPC to purchase a minimum of 1.8 million tons of HSD/annum. Given the current demand scenario and the ingress of smuggled products, PSO must reassess the contractual quantities locked in with KPC. We hope that the situation starts getting better in view of the aforesaid actions.

OCAC on the other hand is blaming OGRA for its repeated decisions to permit additional HSD imports amidst already high HSD stocks, citing the upcoming turnaround of Pakistan’s largest refinery and the agricultural season as justification. If OGRA’s assertions held any merit, refineries should currently be operating at optimal throughput and not resorting to renting additional storages. Refinery maintenance turnarounds are meticulously planned, with stock levels strategically calculated for supplies during the shutdown period. This planning has been thoroughly coordinated with OGRA through multiple meetings, and no credible justification was identified for approving additional HSD imports, especially when the country already holds over 45 days of HSD stocks. Furthermore, since April 2024, refineries are renting additional storage facilities for HSD, further increasing their financial burdens. According the OCAC, the average monthly HSD sales, including seasonal demand, in FY2023-24 have been 520KT.

OGRA’s claim that lower sales are solely due to price trends is baseless. Sales have consistently declined since 2023 due to low economic activity and unabated cross border movement, with no significant increase in HSD demand outside the agricultural season. Even during the April-June 2024 agricultural season, monthly average sales reached 551 KT, with no need for additional imports beyond those supplied by PSO, as refineries could meet the country’s demands by supplying ~400KT HSD per month.

The influx of HSD from cross-border sources has already undermined the local demand, and without controlling this influx, the rationale for further imports is weak and detrimental to local refineries. These concerns have been consistently raised in product review meetings and recorded by OGRA in the minutes of meeting effective April 2024 through July 2024, stating that the country is facing high stocks position, low sales and it is important to accommodate local refineries through rationalization of imports.

Additional HSD import approvals for a specific OMC were granted in June (15KT), July (15KT), August (40KT) and product has already been discharged. Further import approvals for 38KT HSD were granted for September 2024. The cargo arrived on August 30, 2024, and is pending discharge. The September import lay can was known to the regulator at the time of the PRM.

OGRA’s repeated advice for refineries to compete on commercial terms with the international market effectively means yielding to unjustified commercial conditions imposed by the specific OMC. PSO imports HSD under a long-term G-2-G contract and cancels cargoes to support refineries in the wake of rampant smuggling and depressed sales; similarly, imports by other OMCs should be outrightly discouraged. It also goes to prove that linking unjustified additional imports with any refinery shutdown is unreasonable. OGRA’s statement of keeping flexibility in allowing additional imports applies only to Motor Gasoline, not HSD.

Prioritizing unnecessary imports over refinery upliftment exerts undue pressure on Pakistan’s foreign exchange reserves, especially given the current economic challenges. The oil industry, including refineries, expressed deep concern and dissatisfaction with the current situation, which fosters unfair competition and negatively impacts the industry.