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PSO emerges as sole POL supplier to Pakistan armed forces

Mar 11 - 17, 2002

Pakistan State Oil (PSO) will be the sole supplier of petroleum products to the Pakistan armed forces for the next financial year that starts from July 2002. Currently, PSO and Caltex Pakistan are jointly supplying petroleum products to the country's armed forces.

PSO, the leader in Pakistan's petroleum market, has over 70% share, followed by Shell Pakistan with 20%, Caltex Pakistan with 8%, and Attock Petroleum with 2%.

PSO's Managing Director, Tariq Kirmani, said: "PSO will meet the 100% requirements for fuels and lubricants of the Ministry of Defence. And we won through competitive bidding as our bid was the lowest." This is the second fiscal year in which oil-marketing companies have been invited to take part in an open bidding. Earlier, oil companies received supply fees, while the Defence Ministry directly purchased products from refineries.

Pakistan armed forces' petroleum demand ranges between 250,000 metric tons and 300,000 metric tons a year.

Meanwhile, the September 11 incident in the US, followed by the Afghan war and India-Pakistan standoff in December 2001 have caused a slump in economic activities in Pakistan, resulting in reduced domestic consumption of petroleum, oil and lubricants (POL) products.

The industrial consumption of POL products fell by 5 per cent during July-February 2001-2002 as compared to the same period of 2000-2001.

The POL consumption declined by 9.1 per cent in July-December 2001 due to the reduced consumption of fuel oil and gas oil, which constitute almost 86 per cent of total demand.

Tariq Kirmani said the POL demand had started improving from January and February. "Otherwise, these figures would have been worse'" he said. Figures of February are not yet available but, according to Mr Kirmani, the outgoing month has really been good for the OMCs. POL consumption in January 2002 stood at 1.52 million tons as compared to 1.352 million tons in the same month of 2001. However, POL demand in July-January 2001-2002 plunged by 6.16 per cent as compared to 9.1 per cent in July-December and 10.80 per cent in July-November.

Mr Kirmani believes that oil demand will surge in the first half of 2002. He said the oil demand had started recovering and would only decline between 5% and 6% in the financial year ending June 30, compared with a fall of 9.5% from July to December last year.

Petroleum product demand stood at 18 million tons in the last fiscal year ended June 30, he said.

Kirmani said diesel demand was showing a visible increase due to a rise in transport activity, which is linked to neighbouring Afghanistan.

The increase in fuel demand is due to cement and food-related supplies, and military activities of the coalition forces in Afghanistan.

Increased supply of fuel oil to Wapda will further improve its demand, as Wapda now needs more Furnace Oil for power generation due to water shortage. The demand for petrol has also surged due to an increase in sales of new cars from January. Jet fuel sales have been steady due to the return of foreign airlines to Pakistan.

The MD, PSO, said it was good to see that the large-scale manufacturing, which had been severely hit after September 11, had started picking pace.

On POL products demand in Afghanistan, Tariq Kirmani said the company had received enquiries for jet petrol and lubricants but so far no products had been shipped.

"A PSO team will visit Afghanistan to assess the demand as soon as the security situation improves," he said. Currently, the company is engaged in refueling activities for incoming and outgoing Afghan relief flights. Pakistan's industrial POL demand, which was 18.1 million tons in 2000-2001, may see a marginal decline of 0.5 per cent by the end of fiscal 2001-2002 as compared to estimates of five to six per cent fall.

On deregulation, the MD PSO said he expected the government to fully deregulate the petroleum business in July. A decision on increasing commissions for oil marketing companies is also expected soon.

The oil companies are finding it difficult to weather the adverse market conditions due to low margins, according to Mr Kirmani.

"The last four months saw eight price drops. In other words, what happened was that oil companies were exposed to international pricing while their margins were fixed. This was expecting too much from the marketing companies," he said.

He said that oil companies had asked the government to consider increasing the margins and the government was reviewing a possible increase. At present, the margins stand at an average 2% of petroleum products' sale. "The government had agreed with oil marketing companies five years ago to gradually increase the margins to 5%. Whether (this time) they go to 3%, 4% or 5% I don't know," he said.

Kirmani said he didn't know when the government will decide on the margin increases, but said they will be in stages until the petroleum business was full deregulated in July. Following the deregulation, the government may still decide to keep an upper limit on margins, he added. PSO is fully prepared for the industry's deregulation and has a market strategy to deal with competition, Kirmani said. Mr Kirmani cited the case of lubricants, which are fully deregulated. PSO has become the industry leader, overtaking Shell Pakistan in January this year. The company's share in Pakistan's lubricants market rose to 43% in January.