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Deregulation of oil imports

The government's decision to deregulate petroleum sector will certainly restore confidence of the international investors

July 09 - 15 , 2001

The decision to deregulate the petroleum sector in Pakistan (import and pricing) prior to holding the energy conferences in UK, Canada and the United States shows the wisdom to make the privatization programme a success in Pakistan.

The timings of the deregulation in Pakistan and holding the energy conference to attract foreign investors in oil and gas sector seem to have clicked as inquiries have started pouring in.

The energy sector has once again appealing the international investors especially in oil and gas business. The credit however goes to the economic managers who have come out with the policy of deregulation of oil price and its import by the marketing companies with effect from July 2001. The step is being proved inviting for the international players in the oil sector who have started showing their interest to invest in the petroleum sector in Pakistan.

On the home front, the three major oil marketing companies i.e. Caltex, Shell and Pakistan State Oil have started their future strategies to have a major share of the market. The Oil and Gas sector is a very important area of the economy, which has immense potential for growth and has proved to attract foreign investment easier than other sectors of the economy. Pakistan's total demand of Petroleum products is around 18 million tonnes per annum which is increasing at a rate of 5 per cent. The sector has succeeded to achieve self-reliance in producing petrol, LPG and CNG, however the country has yet to import a large volume of furnace oil and diesel to meet the energy requirements.

With the enforcement of deregulation policy in the import of oil, Caltex which is one of the major oil marketing companies has floated a tender for purchase of 80,000 tonnes high speed diesel recently. Out of the total, a large quantity will come from Middle East in two shipments each of 40,000 tonnes in a couple of months. Before deregulation of the import of oil, the Ministry of Petroleum was responsible to fulfil the need through imports of finished or crude oil. Caltex and Shell were asked to float open tenders as after the deregulation of petroleum products import, their initial imports were expensive since they had bought only through their international associates i.e. Caltex International and Shell International. Under the current policy, the oil marketing companies would be required to import oil on competitive prices by floating the tenders for the purchase instead of having direct deals with their parent companies operating in the world market.

Hence, the Caltex had no choice but to float tender to import oil. Similarly, other company that is Shell would also be required to float tenders to buy oil from the international market.

The other oil marketing company, Pakistan State Oil has a long-term contract with Kuwait Petroleum Company and importing its spot requirements through tenders.

The Ministry of Petroleum is no more involved in oil imports business. It is the baby of PSO, Shell and Caltex as far as the import of petroleum products is concerned. Pakistan State Oil (PSO) has also awarded contract to buy up to 150,000 tons of Low sulfur fuel oil (LSFO) for July-September delivery. PSO has awarded contracts for supply of consignment each of 25,000 ton to European trader Glencore and Middle East traders Bakri Trading. According to reports, the two shipments, each in July and August was awarded to Fal Oil at a premium of $44.78 per ton to the Pakistan formula. For September, Pakistan bought one cargo from Glencore at premium of $38.68 per ton. Pakistan had also awarded an optional cargo each for July and August to Bakri Trading at a premium of $51.99 per ton. Glencore was awarded an optional cargo for September at a premium of $38.68 per ton to the Pakistan formula.

The policy makers have shown some business acumen by implementing the decision of deregulating the pricing and import of oil prior to holding of international oil and gas conference at London, Calgary and Houston.

Altaf Saleem, Minister for Privatization who recently returned home after successfully organizing the three energy conferences, said "we had gone to hold these conferences first time in 18 months. Before organizing the conference, Pakistan did some reforms implemented in Pakistan to show the seriousness of the purpose to attract the foreign investors. As a result of these steps taken in Pakistan, the Canadian government was also keen to encourage their companies to come to Pakistan."

The government's decision to deregulate petroleum sector will certainly restore confidence of the international investors. On the home front, ever increasing prices of oil is the major concern of the consumers. How the decision of deregulation goes in favor of the consumers has yet to be seen.