NEW TRADE POLICY: BAN ON INDIAN DIESEL LIKELY TO GO

Commerce Ministry prepares draft proposal for importing Indian petrochemical products

From KHALID BUTT, Lahore
June 20 - 26, 2005

Pakistan is likely to allow the import of diesel and petrochemical products from India in its upcoming trade policy with a view to curtailing the rising freight cost in the wake of increasing international oil prices.

On the back of growing economic activities the oil consumption was also on the increase in the country which may increase oil imports in the years to come. The cost of oil imports during the recently concluded financial year 2004-05 was estimated at over $4.5 billion.

Amongst the bulk oil consuming segments of the economy, thermal power generation comes on top of the list as the entire Independent Power Producing companies were operating either on fuel oil or diesel, besides the transport sector consumes diesel heavily. Another major oil consuming sector is Pakistan Railways that mostly operates on diesel-fired engines.

Though the federal budget in order to encourage use of CNG has reduced the import duty on CNG kits, the oil consumption is likely to grow at least for the next couple of years. The trend of converting oil-consuming vehicles on CNG or LPG is visible in the urban areas of the country, the oil consumption, however, continues to grow. Market analysts, however, see the trend as a sign of a vibrant economy.

Informed sources told PAGE that the Ministry of Commerce has prepared the draft proposal for import of Indian diesel and petrochemical products.

Prime Minister Shaukat Aziz has promised that the policy on import of diesel and other POL products from India will be reviewed in the upcoming trade policy, the sources said.

The sources, however, added that Indian Petroleum Secretary would meet Pakistan's Commerce Secretary Tasneem Nurani and put in a formal request for taking diesel and 'LAB' out of the negative list of importable items from India.

There seems no harm in importing the required diesel from India hence it can be allowed in the forthcoming Trade Policy. However, instead of paying in cash, the import should be tied up with the exports of certain items from Pakistan so that a balance could be maintained in the trade balance which is already tilting in the favour of India over the years.

Meanwhile, sources said that Indian Oil Corporation (IOC) had offered the export of 325,000 tons of diesel through Karachi port and Wagah border to Lahore and Jhelum, respectively, from October 2005 to March 2006.

Indian Petroleum Minister Shri Mani Shankar Aiyar, during his recent visit to Pakistan, had pointed out that Pakistan was currently importing diesel from the West Asian countries obviously at cheap price. The Indian Petroleum Minister pointed out that his companies could offer bids at competitive prices provided that Pakistan could remove this item from the negative list. He also met with President Pervez Musharraf, Prime Minister Shaukat Aziz and Commerce Minister Daniyal Aziz.

Petroleum Ministry sources disclosed that the ministry had sent a fresh summary to the government, advising for lifting the ban on diesel imports from India. "We have recommended that diesel should be removed from the negative list of products from India," officials said.

The officials expected a decision likely to be made by the Economic Coordination Committee before the announcement of Trade Policy.

Industry sources said Pakistan would enjoy lower transportation costs if it imports diesel from India. Currently, it imports 4.5 million to 5 million metric tons of diesel every year, mostly from Kuwait Petroleum Corporation.

Officials said that it would be up to the oil marketing companies to decide whether they import from India if diesel was removed from the so-called "negative list". India's largest private sector company, Reliance Industry Corporation, has approached Pakistan State Oil (PSO) to export their diesel to Pakistan, said PSO sources. They said, "once the government decision comes, PSO has no problem to deal with anyone. We have just started negotiations with the Indian company," they said, adding: "the quantity and price for importing Indian diesel have not yet been set." PSO had a 60 percent market share of diesel in Pakistan.

Industry sources said that there was no hope to increase the consumption of black oil in the country over the next six months.

The federal government had deregulated the diesel product in the country about a couple of years ago, allowing oil-marketing companies to import diesel from anywhere in the world.

Officials said that the lifting of the ban on diesel import from India would reduce dependence on Middle Eastern supplies. India's largest refinery, Indian Oil Corporation (IOC), had also submitted a proposal to export surplus diesel to Pakistan, oil ministry officials said.

The IOC has pipelines running close to the Pakistan border.

Officials said India proposed to export at least 1.5 million tons of diesel to Pakistan's Punjab province, which currently imports the fuel from Kuwait and other Middle East countries through Karachi port.

New Delhi also offered Islamabad the assistance for setting up city gas distribution network and Compressed Natural Gas retail system to facilitate CNG-running automobiles. Besides, India has also proposed its firms for retailing fuel and exploring oil and gas in Pakistan.