Ban on furnace oil import may be removed

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VIAMushtaq Ghumman
SOURCEBusiness Recorder
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The Cabinet Committee on Energy (CCoE) is likely to lift ban on import of furnace oil to meet power sector demand during the summer months after imposing ban on the demand of local refineries, sources close to Petroleum Minister told Business Recorder. Giving the background, the sources said, the CCoE on December 5, 2018 imposed a ban on import of furnace oil for power generation purposes. This direction was later reiterated by the CCoE twice in its meetings held on December 26, 2018 and January 8, 2019.

Petroleum Division has now received furnace demand of about 1.17 million tons from the Power Division for the period from April to August, 2019 for operating as well as stocking requirements. In addition to RFO demand by Power Division, K-Electric also placed a demand of around 0.6 million tons for April to August, 2019.

Also Read: Govt imposes ban on import of furnace oil

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Keeping in view the furnace oil production by local refineries / available stocks of RFO in the country, the net deficit of furnace oil works out to around 0.5 million tons, which can be imported, once the ban imposed by the CCoE is lifted.

Petroleum Division argues that prior to imposition of ban by the CCE, furnace oil imports by Pakistan State Oil (PSO) used to be arranged on Freight on Board (FoB) basis by transporting through Pakistan National Shipping Corporation (PNSC), under a Contract of Affreightment (CoA) between the companies. However, due to long outstanding issues relating to the CoA between the two parties, Petroleum Division had referred the matter to the ECC of the Cabinet, in May 2018, for termination of the CoA with PNSC and resumption of furnace oil imports on C&F basis through opening bidding process. However, the ECC, in its decision of May 17, 2018 decided that PNSC and PSO should resolve the issue mutually at their own level without referring it back to the ECC.

In compliance with the ECC decision, PSO requested PNSC in August 2018 to address its concerns with respect to CoA and consequent renewal of it. However, no response was given by the PNSC. Subsequently, the term of CoA was completed on November 30, 2018, without PSO and PNSC reaching any agreement on the outstanding issues. As such, the CoA stands expired since December 2018 as informed by PSO. Consequently, any import plan by PSO will be based on C&F arrangements in accordance with PPRA Rules 2004 for which PSO will need a lead time of 60-70 days to complete the bidding process.

The sources said, another important aspect is the PSO’s long outstanding receivables which have accumulated to the level of Rs 315,6 billion as of March 25, 2019 including receivables of Rs 206.9 billion from power sector on account of furnace oil supplies to power plants. Estimated value of furnace oil imports, as per demand, is approximately $ 317 million which PSO is unable to procure without any financial support owing to its liquidity position, at present.

The Petroleum Division has submitted the two following proposals for future course of action in furnace oil import: (i) the ban imposed on furnace oil import may continue. Accordingly, Power Division may be directed to cater its demand for power generation alternate sources; or (ii) PSO may be allowed to import 0.5 million tons of furnace oil to cater to the Power Division and KE demand subject to some conditions.

The proposed conditions are as follows: (i) all cargoes will be imported on C&F basis;(ii) five cargoes may be imported for May 2019, through Gallop Tender;(iii) three cargoes may be imported during June 2019 as per normal tender process in accordance with PPRA Rule 2004;(iv) Power Division may also be directed to release Rs 30 billion to PSO as an advance payment to procure furnace oil to cater the Power Division’s demand; and (iv) Power Division may be directed to uplift product as per their demand so that local refineries operation are not affected.

An official told this correspondent on condition of anonymity that mafia in oil and gas sector was involved in furnace oil and gas crisis a few months ago. The same mafia is now active in seeking permission to import furnace oil.

(This news/article originally appeared in Business Recorder on April 15th, 2019)

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