The domestic production of high-speed diesel (HSD) and petrol could potentially go up by 60 per cent and 48pc, respectively, leading to a significant foreign exchange saving provided the local refineries operated at optimum capacity.
The oil import bill, particularly of refined petroleum products, has been the largest chunk of about 83pc increase in imports in the first five months (July to November) of the current fiscal year, causing unrest among the government’s ranks, as money and share markets nosedived with the start of this month.
Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin earlier this month reported that the biggest additional burden of $508 million, out of the total increase of $1.4bn in the November import bill, was on account of the petroleum group mainly because of higher prices.
He conceded that there were fault lines in the government policy, as local refineries operated at low capacity and refined products were being imported. “This should not have been happening. This is a fault line,” he said at a news conference.
The local refineries had been facing operational challenges because of lower furnace oil off-take by power producers despite their extremely low storages than contractually required and large import quantities of both petrol and diesel by oil marketing companies (OMCs). Strangely though, the Federal Board of Revenue’s customs policy member, Saeed Jadoon, told a parliamentary panel last week that imports of petroleum products were inelastic and could not be controlled.
Data collected from industry sources suggest that all the five local refineries are operating at sub-optimal capacity. The five refineries could together produce about 274,000 tonnes of petrol per month with optimum capacity utilisation but were operating about 170,000 tonnes per month, almost 60pc lower than capacity.
As such, refineries can produce about 3.3m tonnes of petrol per year but their cumulative production is estimated at about 2.05m, a deficit of 1.25m tonnes that has to be met through additional imports.
Likewise, the local refineries are producing a total of about 330,000 tonnes HSD per month, almost 48pc (or 160,000 tonnes) lower than their total monthly capacity of about 490,000 tonnes. Stretched over the year, the estimated local production works out to be 3.96m tonnes, about 1.92m tonnes lower than the optimum capacity of about 5.9m tonnes. The combined deficit production of petrol and HSD comes in at about 3.2m tonnes with an estimated cost of over $1.8bn per year.
The refinery data, which has also been shared with the government, suggests that Attock Refinery was producing 23pc and 50pc lower petrol and diesel than its capacity, while Pak-Arab Refinery’s HSD and petrol production was 42pc and 52pc lower than its capacity.
National Refinery’s production of diesel and petrol is about 80pc and 108pc lower than the capacity while Pakistan Refinery’s underproduction stood at about 30pc in both products. Byco refinery was producing about 25,000 tonnes of petrol, 106pc lower than its 65,000 tonnes capacity while its HSD production was around 55,000 tonnes, about 45pc lower than its 80,000 tonnes capacity.
Mr Jadoon told the Senate’s finance committee that despite regulatory duties some of the big-ticket imports were unavoidable, such as petrol, whose import value more than doubled to Rs353bn during July-November this year against Rs174bn a year ago due to the international price factor as its import quantities did not increase significantly.
Likewise, the monetary impact of gas also more than doubled to Rs322bn in five months against Rs144bn last year despite the fact that its import quantities had actually come down. The situation was not different for diesel and coal.
Last week, the Directorate General (DG) of Oil of the Petroleum Division warned of supply chain challenges and great financial loss to the oil refineries and state-run oil suppliers because of acute refining and storage capacity constraints, as the power sector backed off its commitments. The DG Oil warned that refineries had repeatedly been highlighting their difficulties that they were heading towards closures.
The DG Oil said the local refineries were supplying over 11m tonnes of various petroleum products a year. However, “due to non-upliftment of furnace oil, owing to limited storages, the refineries are forced to reduce throughput and close the crude processing which will affect the availability of all the other petroleum products eventually disturbing the already fragile supply chain”, he wrote.
The refineries had complained that OMCs were allowed to import low sulphur furnace oil (LSFO) and high-sulphur furnace oil (HSFO) during July-November on the firm demand placed by the power division but the non-upliftment of the committed quantities by the power generation companies or independent power producers (IPPs) ensued a stock build-up at OMC storages. Consequently, the upliftment of furnace oil from refineries was limited and stocks continued to build up.
He said substantial payments were released to IPPs this year and one of the conditions was that power plants would keep mandatory stocks as required by their fuel supply agreements with the OMCs, but all storages of power plants were empty and IPPs were maintaining two to three days of stocks in storages against the mandatory 30 days.
On the other hand, the refineries were compelled to export furnace oil at great a financial loss. “This export will cripple the already overburdened port infrastructure and industry will face huge demurrages as well,” the DG warned.