Petroleum products account for a substantial portion of Pakistan’s import bill. During FY2011-12, Pakistan imported $18.9 billion worth of crude oil but courtesy of the steep decline in the commodity’ foreign price, oil imports came down to $7.9 billion during FY2015-16. The savings on oil import enabled the country to increase the purchase of machinery and other capital equipment essential for development without having the present account deficit shoot up.
Not only that, low oil rates were instrumental in keeping the general price level from rocketing. Thus greater than any other factor, low oil rates were accountable for single-digit inflation during previous 2-year period. But the higher oil rates would stoke inflation and put pressure on the balance of payment situation and foreign exchange reserves.
Since oil is the key source of electricity generation in the country, the hike in petroleum products’ rates may make it hard to significantly ease power outages. The silver lining is that rising oil rates would push up economic growth in Gulf nations, which are a main source of remittances for the country.
Needless to say, the remittances are one factor that has sustained the economy over past many years.
Economists have revealed that the Government of Pakistan has imported petroleum products value 38.673 billion dollar in last five years to meet energy needs of Pakistan. The petroleum products amounting to 9,422 million dollar were imported in the year FY2011-12; 8,282 million dollar during FY2012-13; 8,899 dollar million during FY2013-14; 7,411 million dollar during FY2014-15 and 4,659 million dollar in FY2015-16.
The petroleum products were being sustained by oil marketing firms keeping in view their commercial requirements. As of December 6, 2016, reserves of HOBC were available for 122 days, JP-I for 12 days, Superior Kerosene Oil for 15 days, Motor Spirit for 11 days, High Speed Diesel for 23 days and Furnace Oil for 24 days.
Pakistan’s crude oil production will reach 90,000 barrels per day (bpd) during the present winter season.
The country is moving fast towards achieving self-reliance in crude oil production after the present government accelerated exploration of indigenous hydrocarbon resources over the previous 3-year. Capacity to produce crude oil and its indigenous refining is growing slowly. Now, Pakistan has started moving on the path of achieving self-reliance in the sector.
The present government had so far added 32,000 bpd in crude oil production, while extra 4,000 bpd oil will come to the system during the present winter, bringing the production capacity to 90,000 bpd mark.
Currently, as many as six oil refineries were operating in Pakistan and they had full capacity to refine the product as per needs of the country. Presently 70 percent of the present oil demand was met by import and the Government of Pakistan had planned to organize more oil refineries in the upcoming days.
At the moment, the Government of Pakistan in an important move to achieve self-reliance in the oil production sector, had given the task to PARCO (Pakistan Arab Refinery Company) to complete the much delayed multi-billion dollar Khalifa Coastal Oil Refinery project. This coastal refinery will have the capacity to refine 250,000 bpd – equal to 13 million tons of petroleum products yearly.
Furthermore, the FBR (Federal Board of Revenue) has presently declined sales tax on different petroleum products from January 1, 2017 counting high speed diesel oil, kerosene and light diesel oil. According to an SRO.1180(I)/2016 issued by the FBR, sales tax on motor spirit remains equal at 14.5 percent. Sales tax rate on kerosene has been declined from 2.0 percent to zero percent from January 1. Sales tax on high speed diesel oil has been declined from 31 to 25.5 percent, reflecting a decline of 5.5 percent.
OIL MARKETING COMPANIES
Owning to multiple factors, the Oil Marketing Companies (OMCs) start outperforming after showing dismal performance in fiscal year 2016.
It is said that rebound in global crude oil rates started proving great assist to the oil marketing companies in regaining their lost profits, whereas these firms had been experiencing underperformance of 4.3 percent as against to the benchmark throughout previous year. It is said that a main source that had been knocking the profit down of OMCs, inter-corporate debt (commonly known as circular debt), had slowdown in accumulation this year, besides overall improvement in viewpoint midst fast progress on CPEC (China-Pakistan Economic Corridor), have contributed towards the present performance.
It is believed that strong performance is probable to continue as OMCs look geared to witness a period of super growth chiefly in the White oil segment (MS and HSD). The fall in share of Black oil (FO) due to lesser reliance on FO based power generation and benign oil rates should keep circular debt stock in-check going forward.
OMC sector is set to get advantage from strong sector dynamics and enhancing economic fundamentals. It is anticipated oil sales of OMCs to increase 9 percent in a 3-year as against last 3-year growth of 7 percent and last 5-year growth of 4 percent.
Robust demand of White oil is being anticipated to lead this strong growth. Within White oil, petrol sales (MOGAS) is probable to increase at a 3-year of 18 percent driven by growing vehicle and bike sales and affordable pump rates.
Along with high petrol sales, high speed diesel sales (HSD) are also anticipated to rise at a 3-year (FY2017-2019) over 3 percent against the last 10-year of 1.0 percent.