ARL shuts down two plants as OMCs snub local products

KARACHI/ISLAMABAD: Attock Refinery Limited (ARL) has shut down two of its crude distillation plants due to reduced off-take of finished products by oil marketing companies (OMCs), raising concerns about gas shortages during the winter peak, officials said on Monday.

The company's decision follows reported inaction by the Oil and Gas Regulatory Authority (OGRA) and senior officials in the Petroleum Division against OMCs allegedly favoring imported products over ARL's locally produced POL (petroleum, oil, and lubricants) products in key markets like Khyber Pakhtunkhwa, the northern areas, and the Potohar region.

"The refinery's reduced operation will result in a low intake of crude from local oilfields and this will negatively impact gas supplies to the system from the wells, potentially triggering a gas crisis in the country during the current peak winter months," a senior official of the Energy Ministry told The News.

Adil Khattak, managing director of ARL confirmed the shutdown of the refinery's two units. “Yes, we have been forced to shut down two of our four crude processing plants today (Monday) due to continued low upliftment of petrol and diesel by OMCs who instead prefer to bring in imported products in ARL's supply area in total violation of the Petroleum rules which prioritize upliftment from local refineries," Khattak told The News.

"The ARL has been requesting both the Ministry of Energy and OGRA to stop this malpractice which is not only causing foreign exchange loss but also results in higher consumer prices due to the addition of higher freight charges.”

The ARL management wrote a letter to OGRA and DG Oil on December 11, 2023 to formally let them know that the dispatch pattern of ARL’s finished products of MS and diesel for the current month of December 2023 also continues to stay depressed resulting in a carryover of critically high stocks of both petrol and high-speed diesel.

“Unfortunately, we have no choice except to shut down two of our crude distillation units just to manage high stocks of petrol. We would now be operating at a bare minimum throughput of about 60 per cent. This, if continued, would result in curtailment of crude intake from oilfields with an adverse effect on associated gas as well," the letter said.

The management in the letter to the Executive Director (oil and supply chain) in OGRA and DG Oil in the Petroleum Division stressed to direct OMCs to uplift and prioritize ARL local product uplifting over imports or other sources in the supply envelope so that our refinery can operate at the optimum throughput.

ARL, which refines indigenous crude oil, in its earlier letter written on December 07, 2023, said it was facing serious challenges in disposing of its petrol and diesel production due to poor upliftment by OMCs, who were preferably selling imported products to earn more profits from inland freight equalization margin (IFEM) charges.

The ARL crisis emerged on the scene when its management on December 07, 2023, wrote a letter to the OGRA chairman and Energy Minister informing them about the expected closure of the refinery because of the reduced offtake of its finished products by OMCs, asking for urgent action against the “unscrupulous” OMCs.

The December 7, 2023 letter also mentions that under 35(g) of Pakistan Oil (Refinery, Blending, Transpiration, Storage and Marketing) Rules, 2016, local refinery production must take priority over imports.

The same rule also stresses that it is OGRA’s responsibility to ensure that OMCs prioritize upliftment from local refineries over imports but despite the number of submissions and reminders, OGRA has failed to take any tangible corrective action.

The letter to the Energy Minister also written on December 07, 2023 mentions that ARL has been requesting the petroleum division to allocate 5000 barrels per day of condensate crude oil from fields in Sindh which is currently being exported, but the proposal is yet to be implemented despite its importance for the refinery's operations.

The OCAC’s data also shows the gap between the offered quality of MS and HSD and quantity lifted by OMCs during the August-November period, 2023 which clearly shows that OMCs are involved in defaulting from their responsibilities to off-take the stock as per rules. OCAC’s data also indicates that the products from other sources were moved by OMCs in ARL-fed areas impacting the country’s consumers through higher IFEM charges and ARL products were not prioritized.

The sales figures of the last four months show that only 38 per cent of petrol and 47 per cent of diesel sold by OMCs from ARL’s stock and the rest was brought in from imported sources causing not only foreign exchanges but also higher IFEM which is added up in the consumers' sales prices.