Ogra finds fault with handling of oil crisis

ISLAMABAD: Amid controversies swirling around petroleum crisis and pricing, the Oil and Gas Regulatory Authority (Ogra) has found fault with official handling of the demand and supply mechanism, leading to countrywide shortages, hoarding and black marketing of oil by market players.

In a detailed report submitted to the federal cabinet, Ogra also challenged the position of the Ministry of Energy Petroleum Division (MEPD) that as the regulator it was responsible for ensuring 20-day stock at all times. The regulator quoted a series of rules and laws to claim that maintenance of stock and smooth supply throughout the country was the responsibility of the petroleum division and the director general oil under the MEPD.

The regulator has also attached a number of its communications to the MEPD, warning and highlighting the build-up to the supply crisis and how chronologically the office of directorate general oil (DGOil) had been changing various decisions. The report also contains an updated status on implementation of the cabinet decisions on June 9 in which Ogra had reported penalties imposed on nine oil marketing companies (OMCs) for violation of rules.

The report said the petroleum secretary was on March 20 clearly showed petrol stocks for 15 days and diesel for 43 days with an advice for “instant decision making regarding demand/supply”. On March 25, the MEPD asked all OMCs and refineries “to cancel their planned imports”. The very next day (March 26), the MEPD moved a summary which was approved on Mar­ch 27 by the Cabinet Commi­ttee on Energy (CCoE) to rationalise oil imports, closure of three Karachi-based refineries and curtailing production to 60-70 per cent of local crude by Parco and Attock refineries.

This was done without Ogra’s participation or comment. Based on the CCoE decision, operation of three refineries was stopped while imports were already banned, thereby curtailing the country’s supply sources.

On April 4, the MEPD reported to Ogra that OMCs were not uplifting products from Attock, Pakistan and Parco refineries which should be asked to “maintain 20-day mandatory stocks of HSD [high speed diesel] to meet the demand during harvesting season”. On April 6, all OMCs were asked to uplift product from refineries and build the required stocks. The same day, all refineries were asked to operate at 60-70pc throughput to meet higher demand, particularly of diesel as imports were already banned.

Ogra said it put on record on April 10 its “reservations” over sharing of the CCoE summary after the decisions had already been taken and pointed out “contradiction in the decision taken by CCoE on MEPD summary to operate with two refineries and fresh decision taken by MEPD to operate all refineries”.

The MEPD acknowledged Ogra’s concerns on April 16 and appreciated the latter’s actions for mandatory storage/stocks and said the decisions questioned by Ogra were taken to rationalise all operational issues relating to oil supply and logistic chain and it was no final decision to operate Parco and Attock only but had since been ratified by the cabinet, hence final. Both the MEPD and Ogra pursued the market players to build mandatory stocks.

On April 28, the MEPD lifted the ban on import of diesel and petrol with the condition that importing OMCs will also uplift 20pc of their cargoes from local refineries. This decision was also not conveyed to Ogra.

On May 28, the MEPD moved a summary to change pricing mechanism and sought postponement of price change from June 1 to June 16 to provide “an incentive to OMCs to import product at current PSO price and thereby avoid inventory loss”. Ogra opposed the proposal the next day as it believed the “prevention of inventory losses will be at the expense of national exchequer/consumers” and it would put a national company — Pakistan State Oil — at disadvantage in following procurement rules.

On June 2, Ogra reported the stock position and urged the MEPD to get the schedule of imports and local production under the May 13 decision by the product review meeting changed and aligned to respond to market demand and ensure sufficient stocks and uninterrupted supplies. It also asked the MEPD to arrange additional cargoes for imports to mitigate the situation.

Citing a series of rules, law and evidences, the regulator said: “It is crystal clear that as per applicable policy and law/rules, MEPD holds the exclusive responsibility to anticipate any such situation and take the remedial measures i.e. increasing local refineries’ production up to maximum and ask/ensure additional imports by OMCs to avoid the crisis”.

Moreover, the import of petroleum products was “patently a policy issue involving foreign exchange, which exclusively rests with the federal government of Pakistan i.e. the Ministry of Finance and line Ministry of Energy & Petroleum Division”, Ogra noted.

It said that under rule 7 of Pakistan Petroleum (Refining, Blending and Marketing) Rules, every refinery was required to submit its half-yearly production programme to DGOil of the MEPD which had the powers under rule 8 to approve such a programme or change it, if required, under rule 9. Under rule 10, the DGOil is also to regulate the refineries to process crude oil or feed stocks from domestic or foreign source.

Under rule 13, the DGOil is also to specify and ensure maintenance of crude oil stocks by refineries and products by OMCs under rule 30A. Rule 30B empowered the DGOil and the MEPD to “access the deficit volumes of petroleum products and assign to OMCs specific volume to be imported to meet the demand”.

Also, it put on record that the MEPD regularly holds product review meetings on a monthly basis with all stakeholders — OMCs, refineries, Ogra, power plants, PIA, Railways, etc — “as MEPD is the authority for ensuring the product availability in the country”. The meetings review all the aspects and assessments — local production, carryover stock, change in consumption behaviour, etc — and then finalise “the Product Import Plan that include details of each and every ship, cargo, date of arrival”, which is approved by the DGOil.

Ogra’s responsibility was limited to creation of storages by companies before allowing them marketing and sale of products. The regulator said the country had a total storage capacity of 1.45 million tonnes of petrol and diesel and almost half of that (751,000 tonnes) storage capacity had been built over the last four years with an investment of Rs75 billion.

The responsibility of filling this storage capacity with product stock for 20 days was the responsibility of the MEPD. “Neither it is the mandate of Ogra to stop/curtail local refineries’ production or to ban imports, nor there exists any decision of Ogra in this regard whatsoever,” the regulator concluded, putting the entire blame on MEPD for the petroleum crisis.

Published in Dawn, June 29th, 2020

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