ISLAMABAD: Pakistan is set to take a series of major measures —including weekly petroleum price revision, compensating oil companies for elevated costs of insurance and import premiums, and fuel conservation measures like mandatory work from home — to keep the markets liquid amid the drying out of trade movement following the closure of the Strait of Hormuz.
A summary is being submitted to the federal cabinet’s Economic Coordination Committee (ECC) in this regard for action without delay as petroleum prices appeared to surge, informed sources told Dawn.
However, even before the ECC takes these decisions, the state-run Pakistan State Oil (PSO), under the government’s assent, has launched two import tenders each for petrol and diesel outside the Strait of Hormuz as a precaution, although both product stocks are among the highest in the country at present.
Both petrol and diesel have over 500,000 tonnes of stocks, enough for 26 and 25 days’ cover. Meanwhile, Saudi Arabia has already been requested to provide oil supplies through an alternative Red Sea route.
According to the officials, the Centre had directed all provincial chief secretaries to attend the meeting of the newly created 18-member cabinet committee to monitor petroleum prices scheduled for Thursday. The meeting will consider mandatory work from home wherever possible for the public and private sectors. The meeting could consider other measures as well, with the coordination of the provinces.
While petrol imports continue to be in the safe zone, diesel imports are not; Pakistan heavily relies on long-term supplies from Kuwait with PSO and all those cargoes have to move through the Strait of Hormuz. Additionally, more than 20 per cent of global oil cargoes are reportedly stuck inside the Strait, creating a shortage of ships for diesel.
The officials further said insurance costs for oil companies have surged from around $30,000 to $400,000 per ship, in addition to import premiums for petroleum products. The current pricing is around $3-5 per barrel, the prices at which the PSO had booked cargoes in February but which is no longer the case as fresh orders are placed. As a result, freight costs have also surged as the ship rate has gone beyond $4 million, which was available for no more than $900,000 before the crisis.
The combination of these three factors is exponential and could not be expected of the oil marketing companies (OMCs) and refineries to absorb. Unless properly compensated, OMCs would have sufficient grounds to avoid imports and declare force majeure.
Therefore, a summary to the ECC would provide a mechanism for payment of these additional exigencies to keep OMCs afloat and, in return, maintain their supply chain down to the retail stage.
