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Deregulation boosts competition, promotes operational efficiency and results in increased productivity

Jan-21 - 27, 2002

The oil industry has undergone tremendous changes in the past two years. Until October 1999, the petroleum industry (except for lubricants) was highly regulated with both product prices and margins fixed by the Government of Pakistan. PSO, being a public sector organization, was under the direct control and influence of the Ministry of Petroleum and Natural Resources. Since the induction of the current regime, various steps have been taken for good corporate governance, deregulation and the privatization of the oil and gas sector.

The Government of Pakistan is keenly pursuing deregulation and the privatization of the oil sector. A number of steps have hence been taken for phased deregulation of the oil and gas sector. Fuel Oil imports and prices were deregulated effective July 01, 2000, followed by LPG prices effective September 01, 2000. Gas Oil imports have been deregulated from 1st January 2001. Self-management of freight pool was implemented by the oil marketing companies through the OCAC from March 15, 2001. Effective July 01, 2001 the Oil Companies Advisory Committee (OCAC) has been notifying the POL prices on a fortnightly basis on the prescribed Government of Pakistan formula. Fixing of prices has been implemented at 29 depots, whose number will be reduced to 11 by June 2002. The reduction in the number of depots is likely to result in increased transportation cost.

Deregulation boosts competition, promotes operational efficiency and results in increased productivity but, on the other hand, it also results in reduced margins. Deregulation holds its advantages for OMCs and its customers but the government intervention is also essential to a certain extent in the form of an independent regulatory body to monitor OMCs' activities and safeguard end users interests. In this regard, an Oil and Gas regulatory body is being established.

PSO strongly believes that deregulation would lead to the emergence of a new competitive paradigm of prices. Sustained profitability will depend upon high operating efficiencies and vigorous business practices. PSO always meets the challenges of change dynamically and, hence, is geared up to meet the demands of the upcoming deregulation scenario. PSO has harnessed its strength to stay ahead of the competition as it endeavors to pass on the benefits of deregulation to its customers.

Various projects have been undertaken by the company to upgrade its storage and handling facilities at installations and depots all over the country. The company has proactively enhanced its facilities to handle HSD at the Zulfiqarabad Oil Terminal, Port Qasim, at a total cost of Rs 330 million. It now accommodates 100,000 tons of imported HSD in its storage tanks with a 16-bay tank lorry loading gantry. Consequent upon deregulation of HSD imports, the company became the first oil company to import 33,000 tons of HSD at the Zulfiqarabad Oil Terminal. The first HSD tanker berthed on January 15, 2001 and discharged successfully. This new arrangement for HSD handling has not only relieved Karachi from noise and environmental pollution but has also reduced the traffic congestion of POL tankers at Keamari.

PSO has remodeled its Chakpirana Depot at a total cost of Rs. 123 million to increase its storage capacity. Likewise, the company has also upgraded its Sihala and Morgah Depots. Since the deregulation scenario will allow OMCs to import according to their specific requirements at their will, PSO will have a competitive advantage as it has a long history of importing POL products.

In order to ensure long-term supplies, PSO has recently entered into a 10-year purchase and sales agreement with NRL for the supply of petroleum and allied products. A similar long-term agreement has been signed with PARCO. PSO has also signed a contract with the Kuwait Petroleum Corporation (KPC) and other international companies for the supply of deficit products (Fuel Oil and HSD) at attractive premium and competitive rates.

It is an established fact that post deregulation has resulted in price variations from outlet to outlet. Therefore, in order to inform its customers about the changing prices, help them in their POL buying decisions and to promote healthy competition among the dealers, PSO took the initiative of installing Price Display units at its monoliths and pylon signs. To reduce the transportation cost, PSO has embarked upon an ambitious project of fleet management in major cities of Pakistan. The product will, therefore, be transferred through the company-owned tank lorries. In order to improve the operating efficiency, customers can have online access to company wide information. Also, to prove its processing expertise, PSO is implementing Enterprise Resource Planning (ERP).

Daunting as the challenges of the future may be, PSO has taken preemptive measures for the impending deregulation and strengthened its infrastructure and made all other necessary changes to safeguard its interests. In this diversely changing scenario, PSO is geared up to meet the challenges of deregulation by adopting all the means to maintain its leadership in the industry in terms of profitability and the market share.