OCAC chairperson calls for focus on local diesel supply to save foreign exchange

KARACHI: The oil sector sees no justification to import additional high-speed diesel (HSD) cargoes after its demand in the country has been drastically reduced from 750,000 tonnes per month to 500,000 tonnes per month due to multiple reasons, including the influx of smuggled products in the country.

Chairperson of the Oil Companies Advisory Council (OCAC) Adil Khattak said the reduced demand means that local refineries are meeting about 80 per cent of the country’s demand while the remaining deficit can be met by PSO through a government-to-government contract (G2G). Hence, there is no justification whatsoever for importing additional HSD cargoes into the country.

Talking to The News, the OCAC chief added that the country’s precious foreign exchange of about $45 million on the import of one cargo cannot be doled out every month on the pretext of quality and market dynamics when the local product is available in ample amounts. The product meets the country’s quality standards and is priced accordingly.

He said that refineries are fully committed to undertaking and upgrading their respective refineries, and they communicated this to the government as well. The delay has been due to the finalization of the refining policy which has been under discussion since 2019.

Khattak strongly refuted a statement by an OMC where local refineries have been maligned for producing lower standard fuels due to old design vis-a-vis imported fuels and that some OMCs have business interests tied with the refineries.

Although the last policy was announced in 1997, the refineries have invested heavily in their upgrade and expansion projects over the years in line with the spirit of the various government directives and subsequent policy frameworks. This includes capacity enhancement, setting up isomerization & diesel hydro desulfurization (DHDS) units and allied facilities, which have enabled refineries to improve specifications of PMG and HSD, to various Euro grades (Euro III to V) over the last two decades with cumulative capital investment amounting to Rs200 billion.

All refineries are further contemplating investments of about $6 billion in their respective upgrade projects under the Brownfield Refining Policy 2023. After their successful upgrade, local refineries will be supplying Euro V fuels.

Khattak noted that the 54 degrees C flash point of HSD produced by local refineries is in line with the Euro V specification as notified by the Ministry of Energy (Petroleum Division). Many countries, even while following Euro V specifications, have a lower flash point than 54 degrees C, depending on their country requirements, as flash point is not related to any of the quality parameters of HSD as claimed by the statement.

Maximization of diesel production, a deficit product, ultimately allows Pakistan to save precious foreign exchange by reducing imports to some extent.He said that local refineries have long-term commercial contracts with the leading OMCs in accordance with the applicable rules on an arm’s length basis under licence conditions from Ogra. The refineries have also made generous allocations to the new emerging OMCs, but some prefer to import instead of uplifting products from local refineries, resulting not only in high stocks but also the loss of precious foreign exchange. Hence, it is inappropriate to blame refineries for offering any preferable treatments to larger players during rising trends vis-a-vis emerging OMCs, he said.

He said that refineries are supportive of the deregulation process and have always maintained that such a process should be planned through the collective wisdom of all stakeholders under a phased approach.

It needs to be appreciated that local refineries are the backbone of heavy industrial development in Pakistan and are intrinsically connected to the country’s defence and energy security needs. They are saving about $1 billion per annum through import substitution, contribute about Rs500 billion to the national exchequer in taxes, and provide direct/indirect employment opportunities to more than 100,000 people in the country.

Any blind reliance on the free flow of imported fuels, in violation of the Ogra Rules, which clearly stipulate upliftment from local refineries first, will not only increase risk to the country’s energy security but has the potential to result in disastrous consequences when the country is already confronted with a host of serious economic issues, including limitations of foreign exchange reserves, he said.