Sep 27 - Oct 3, 20

Deregulation of prices of patrol will help remove unethical practices, but there are some powerful segments in Pakistan whose interests are overtaken by it and therefore they resist any such initiative, says head of a local based oil marketing company.

Mumtaz Hasan Khan says price formula of petroleum products has been distorted and it is not fair to make prices of petroleum products equal nationwide. "Equal prices lead to unethical practices," underscores Chairman and CEO Hascol Petroleum Limited, a known oil marketing company that is engaged in purchase, storage, and sale of fuel oil, high speed diesel, gasoline, jet fuel, and lubricants.

Recently, the federal government revealed its plan to deregulate prices of patrol, which would shift discretion of price determination to oil refineries from a sole regulatory authority. The deregulation among other things will strike out inland freight equalisation margin (IEFM). This removal will bring down prices of patrol. Albeit talks of days over years, deregulation has not reached to its materialisation so far, says Khan. The reasons are simple, he maintains, "while there are political issues, deregulation goes against the vested interests".

Though he did not specify whether deregulation might be helpful in making prices of gasoline, an energy product of mass market, suitable, yet he spoke out in clear terms it would quash 'unethical practices'. He, however, is in favour of link of domestic prices with international premiums. "It should be linked with international prices," he says.

In Pakistan, the government has an unshared authority to set the prices of petroleum products. Pakistan State Oil, Shell, Caltex, and Total meet almost 90 per of fuel needs of the country. State-run PSO holds the largest share of roughly 48 per cent of oil supply, supplying 3000 to 4000 tons patrol daily across the country. Levies on petroleum products earn government substantial revenue and the price formula often comes under caustic criticism for its imprudence, showing a wide gap between ex-refinery price and price for consumer. Above all, sole authority, to some, of the government over prices goes against the progressive competition in the oil sector that is flourishing with considerable emergence of numbers of local and foreign companies and rising consumption of gasoline and gas in the country.

Deregulation of liquefied petroleum gas sectors did not give impressive examples. But, partly it was due to sale of LPG largely from unregistered outlets. Promoting LPG sale from proper outlets is the plan licking dusts in record rooms of the government departments and government has been unable to make LPG preferable fuel. Chairman Hascol awaiting no-objection certificate from oil and gas regulatory authority for LPG station says LPG is efficient and eco-friendly than compressed natural gas, a rapidly growing substitute of conventional fuels in Pakistan. "We are all set to establish LPG stations around the country; it has no duty or taxes."

Our main problem is we are not getting level playing field, comments Mumtaz Khan who believes the government neglects small oil companies. The terms and conditions small companies have are not the same big companies enjoy, he underlines. For example, we have a brief credit cycle of 21 days in contrast to 60 days big companies have, he says. Even, we need to foot the bill before the given credit tenure in order to keep supply consistent and save our reserves from drying up. Strong balance sheet is a prerequisite the government sets for flexible financial arrangement, he understands. But, it should not be misconstrued that we want special supports from the government, he clarifies. "Our concern is supply constraint," says Khan who plans to increase numbers of Hascol's outlets to 200 by end of 2010 from present 160 nationwide.

When there is shortage big companies are received inventories on priority basis while small ones lie around for breathing space. Mumtaz Khan says that the government should allow small companies to import oil to meet their supply needs. Alternatively, the government formulates policy in a way they must have some shares in liquids imported by traditional importers, he suggests.

Perhaps, first time in the history of the country fuel stations in many areas were dried up of patrol stocks until last week bringing energy-run lives of many to standstill while people were charged exorbitant and whimsical prices for a litre of patrol in some places. While the floods that adversely affected fuel logistics scaled up the costs of transportations, black-marketers went on the looting spree to cash in on the opportunities. It was interplay of floods and circular debts due to which oil supply hit a gigantic snag. Parco shuts down its refinery operations, leaving 20 to 25 per cent chasm in demand-supply for more than 40 days. Bosicor, another leading refinery, fell in the mess of financial crunch trimming down production. Delay in payments by oil marketing companies to refineries also has a huge drag on the full capacity operation of oil refineries. Alone PSO has reportedly 149 billion rupees debts. According to the chairman Hascol, Parco's closure created shortage in several spots in Punjab. The bellwether oil refinery in Pakistan has an outturn of 100,000 barrels per day, he says. The supply line in southern region of Karachi for instance was not affected because of intact operations of PRL and ARL. Hascol's retail outlets escaped the recess as it makes little of total supply in the country. Diesel is the main product of the company along with high sulphur fuel oil and marine gas oil supplied from its bunkering division at Port Qasim at Karachi. We also want to start aircraft refuelling services at different airports around the country, says Mumtaz Khan, adding civil aviation authority is considering our proposal to allot us lands at airport's vicinity. Hascol has reached a technical services agreement with Emirates National Oil Company Limited, UAE.

Chairman Hascol says there is a need to find more domestic energy sources in the country. Pakistan has a good hydrocarbon reserves and geographical structure and the government needs to make exploration policy more attractive. He also says desulphurisation should be given importance to make liquid oils environment friendly, adding at present no refinery has desulphurisation plant.