ISLAMABAD: In a new development, the government has introduced the penalty mechanism for those refineries who produce the products which will not be at par with Euro-V specifications and in return the refineries got agitated over the government move and lashed out at bid of petroleum division saying instead of giving timeframe to refineries for up-gradation and improving specifications of POL products, it has arbitrarily imposed the penalty mechanism.
The official document spelling out the guidelines for computation of HSD (high speed diesel), MS (petrol) prices due to change of benchmark price from PSO’s FOB price to Platt FOB price, mentions that the penalty will be applied on ex-refinery price of the refineries that are producing below than to the prices of Euro-V standard. The differential of this ex-refinery price and Euro-V uniform price will be adjusted as per existing mechanism through periodical pricing of MS (petrol) and HSD (high Speed diesel.
The document of Petroleum Division says that as per existing practice, uniform ex-refinery price of MS and HSD may be notified based on the fortnightly or monthly FOB price of MS (92 RON) and HSD (10ppm) being published by Platts for AG Market (AGM) including PSO’s actual premium or freight and incidentals or applicable taxes less ocean losses.
In their response, refineries asserted saying that in case any individual refinery is producing EURO-II PMG product but the sulphur contents are up to 10ppm or less sulphur, then sulphur penalty should not be applicable, as it is meeting Euro-V specification requirements in terms of Sulphur. ‘So there is absolutely no logic for imposing a second penalty on MS 91 or below, as refineries not producing 92RON are already paying RON penalty as per existing mechanism and it would be highly unfair to penalise them twice.
Penalties should not be imposed unilaterally on existing price structure as refineries have not been given sufficient time to improve specification from Euro-II to Euro-V as it was done for transition to Euro-II for HSD unless refineries agree for timelines for up gradation to Euro-V in the agreed time period the deprivation of emitted price of Euro-II is unjustifiable.
Refineries through OCAC (oil companies advisory council) and individually also submitted to the government that RON qualification for Euro-V product is 91 minimum and not 92. This anomaly needs to be corrected especially for the refineries to categorize their products as Euro-V in terms of RON specification.
The government’s initiative has also irritated the refineries which in turn expressed their dismay over the move and it also lashed out at the guidelines for pricing of Euro-V (100ppm) HSD/92 RON Mogas (Petrol) for refineries.
In their response, refineries argued saying that the issuance of unilateral guidelines by Petroleum Division for pricing of Euro-V fuels for local refineries without consulting refineries defeats the very essence and spirit of CCOE decision dated June 4, 2020. Refineries in their response also highlighted serious anomalies in the said guidelines, which need to be rectified.
In the letter to Petroleum Division of which copy is available with The News, they strongly disagree with the Petroleum Division mechanism for scaling down PSO import premium by 47.896% for Euro-V HSD imports to work out refineries premium producing Euro-II HSD. There appears to be no logic for assuming a hypothetical of some previous data when the actual premium as published in Platt. The refineries say that using HSD sulphur premium for working out penalty/discount factor for PMG (premium motor gasoline) below Euro-V is neither reasonable nor justified.
Moreover it is also not rational to discount the freight which is considered part of the PSO actual premium as freight whether paid for MS 92 RON Euro-V or MS 92 RON Euro-II will be the same because of being a clean white oil tanker with the same quantity, so it should not be discounted.
According to the official document, on MS (FOB price in US dollar per barrel) the government has decided that the FOB (AGM) price will be scaled down as per existing practice for the refineries that are producing MS below to the standard of MS-92 RON through a RON factor(Ra 1.04/liter). And on MS Premium US dollar per barrel, it has decided that the premium will be scaled down through the discount factor equal to the 47.896% to arrive at premium for MS-92 (Euro-II) derived through a variance of last two years premium of Euro-II and Euro-V of gasoil (HSD) published in Platts for AGM which will be further applied to workout premium for the refineries that are producing MS below than the MS-RON 92.
The factor may be revised, if required, upon the availability of premium for MS (Euro-II) and MS (Euro-V) after one year PSO’s import of MS (Euro-V) as the same is not published in the Platts.
And mentioning about HSD (FOB price US dollar per barrel, the document says that the government has decided that the FOB price for HSD-EURO-V (10ppm) as well as HSD-Euro-II (500 ppm) being published in Platts (AGM) will be applicable for the refineries producing HSD Euro-V and Euro-II respectively. The FOB price of HSD-Euro-II (0.05% or 500ppm) will be scaled down as per existing practice through the penalty factors of 1.7% and 0.705% as already determined vide this ministry’s letter dated February 26, 2013 for the refineries that are producing HSD up to 0.5% and more than 0.5% Sulphur contents respectively.
And about HSD (Premium US dollar per bbl), the government has decided PSO’s actual premium on HSD (10ppm) will be applied for the refineries. The premium will be scaled down through a discount factor equal to the 47.896% to arrive at premium for HSD (0.05%/500 ppm Sulphur contents), derived through a variance of last two years premium of Euro-II and Euro-V of gasoil (HSD) published in Platts for AGM which will be further scaled down to arrive premium for HSD up to 0.5% and above 0.5% Sulphur contents by the factors of 58.73% and 36.40% respectively.
The official letter also says that from September 1, 2020 onward, oil marketing companies (OMCs) and refineries will determine the ex-refinery prices of Motor Gasoline (petrol) and High Speed Diesel (HSD).
