Power production: Despite stock at refineries, furnace oil imports surge

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ISLAMABAD:  Pakistan has imported a huge quantity of furnace oil for power production and has at the same time ignored the furnace oil produced by local refineries as well as cheaper liquefied natural gas (LNG) imports.

Top functionaries of the government were surprised to know that though the country had stocks of 200,000 tons of furnace oil, still it was being imported for consumption in power plants. On the other hand, furnace oil was not being lifted from local refineries which were on the brink of shutdown.

The Cabinet Committee on Energy, in its recent meeting, imposed a ban on the import of furnace oil and initiated an inquiry into huge unchecked imports.

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The matter was also taken up by the Economic Coordination Committee (ECC) which referred it to the energy committee, which would again take up the issue on Wednesday (today).

Also Read: Moody’s warns Pakistan on high debt refinancing

The committee will discuss two options – enhancing existing furnace oil production capacity and allowing refineries export of surplus furnace oil. The committee will also discuss Sui Northern Gas Pipelines’ (SNGPL) firm commitment regarding LNG supplies for four months.

Pakistan State Oil (PSO) is to receive dues of Rs268 billion from power producers on account of furnace oil supply. Apart from this, the second LNG terminal at Port Qasim is being run at half the capacity for the past several months because of lower imports in the wake of reduced demand.

The cost of electricity produced with the help of furnace oil is estimated at Rs12 per unit whereas LNG-based electricity costs Rs9 per unit. This means power consumers are paying for expensive furnace oil.

The ECC, in a meeting held on November 27, was informed that domestic refineries were daily producing 10,000 tons of furnace oil, which was not sufficient to meet consumption needs.

The shortfall is being met through imports. At present, the country has a stock of 200,000 tons of furnace oil.

ECC members noted that despite the availability of a huge quantity of furnace oil in the country, more oil was being imported, which was eating up a substantial amount of foreign exchange.

Looking at the prevailing situation, the ECC was of the view, a ban should be imposed on the import of furnace oil. The ECC directed that the matter may be placed before the Cabinet Committee on Energy for consideration.

The Petroleum Division told the ECC that at present, all the refineries were facing a tough time as their furnace oil inventories had accumulated, especially at Attock Refinery and Pak Arab Refinery. “If the present situation persists, these refineries have warned they will shut down in a few days,” it said.

On the other hand, PSO was not in a position to lift furnace oil due to its critical financial position. By the end of November 2018, PSO’s receivables had swelled to Rs342.6 billion, of which power producers owed Rs268.5 billion for furnace oil supplies, Pakistan International Airlines had to pay Rs44 billion and SNGPL owed Rs30.1 billion for LNG supplies.

The Power Division revealed that power producers had requested for daily supply of 13,000 tons of furnace oil in an effort to build sufficient stocks to cater to electricity demand next summer.

In order to avoid potential disruption to the supply of petroleum products, especially of jet fuel to defence and aviation sectors and to develop healthy reserves at power plants, the Petroleum Division submitted some proposals in the ECC meeting.

It proposed that the Power Division may make arrangements to run some furnace oil-based power plants and ensure consumption of 10,000 tons of oil per day from the local refineries throughout the year irrespective of any season.

It also suggested that Rs46 billion may be given to PSO under a seven-day credit arrangement. In addition to these, the Power Division may lift furnace oil from the local refineries for stock building. 

Published in The Express Tribune, December 5th, 2018.

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