No way out yet to bail out refineries from ullage crisis

ISLAMABAD: The Petroleum Division has so far failed to wriggle the country’s refineries out of the ullage crisis that prompted them to operate with lower throughput because of increasing stock of the furnace oil in their storages, a senior official at the Energy Ministry told The News.

Hammad Azhar, Federal Minister for Energy, on January 6, 2022 asked the refineries to provide subsidy on furnace oil prices, so that the use of product for power generation could be implemented. The furnace oil at discounted price will enable the government to match the Economic Merit Order.

Under the Economic Merit Order (EMO), power plants using the cheapest fuel are first run. And those power plants which run on furnace oil come in the EMO at second last as furnace oil prices are higher than the price of LNG, which is used in LNG-based power plants. And the fuel cost is a pass-through item to the end consumers.

The power plants, which are run on diesel, produce the priciest electricity, which is why the plants based on diesel stand last in the Economic Merit Order.However, the local refineries earlier, as per the official correspondence available with The News, opposed the government’s proposal asking for a discount in the prices of furnace oil for use in power plants on the ground that lowering furnace oil prices was not a viable proposition. This has led to further surge in the ullage crisis in refineries.

However, in a new development, the official said, the Power Division has set up a committee headed by PARCO managing director with lead role with the mandate to interact with his counterparts in other local refineries to seek a solution of the ullage crisis that has badly affected the output of refineries keeping in view the proposal of the Ministry of Energy. The Power Division will also be asked to interact with refineries committee with regard to the discount in furnace oil prices.

Earlier, the Pakistan Refinery Limited (PRL), the National Refinery Limited (NRL), the Attock Refinery Limited (ARL) and BYCO had rejected the government proposal of lowering the furnace oil prices, terming it not an apt solution to the issue as it does not address the refineries’ sustainability issue.

However, PARCO offered the furnace oil price at Rs86,000 per ton in response to the letter of DG Oil based on the directions of the meeting held on January 06 headed by Hammad Azhar, Energy Minister.

Likewise, the National Refinery Limited came up with the furnace oil price of Rs81,000 per ton. The Pakistan Refinery Limited came up with a price at Rs80,000 per ton and Cnergyico (Byco) Rs86,000 per ton. All refineries refused to give further discount in the furnace oil prices.

Since then, there is no progress at all and now the Petroleum Division, as desired by its secretary, has constituted a committee headed by MD PARCO to interact with his counterparts and representatives of the Power Division to reach the price of furnace oil acceptable to both sides.