Short on petrol too! | Pakistan Today

Short on petrol too!

  • Global drop in oil prices, PSO running out of money, surging domestic demand, high tide at Karachi Port preventing ships from unloading fuel imports and unplanned shutdown at PARCO cause unprecedented fuel shortage across country
  • Govt releases Rs 17b to PSO to help resolve its financial crunch, however PSO remains pinned down owing to Rs 110b default in letters of credit to its international suppliers

With Pakistan State Oil (PSO) whining for money and the government struggling with setting the ever-stagnant circular debt in motion, the countrymen’s quantum of agitation is rising with each passing day as they line up at arid petrol stations across the country with their dried up vehicles in search for their daily dose of ‘liquid gold’.

Following a catastrophic series of events over the last few weeks which have resulted in a severe shortage of petrol across the country, especially Punjab, also resulting in slowing down of economic activity, the frustrated citizens have started to come to blows with each other in the petrol race.

The government officials believe the situation will be resolved by Saturday (today). A broken promise this time around is expected to reap riots across the metropolitans.

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WHAT WENT WRONG?

The vicious vortex of bad luck for the commuters is attributable to the global drop in oil prices, surging domestic demand, high tide at Karachi Port preventing ships from unloading fuel imports, a truck crash outside Karachi, an unplanned shutdown at the country’s largest refinery, and the government-owned PSO running out of money.

While Pakistan Today received petrol shortage reports from across the country, Oil Companies Advisory Council (OCAC) Chairman Aftab Hussain believes that the fuel supply disruptions only appear to be affecting Punjab and Khyber Pakhtunkhwa (KP).

OIL SHIPMENT STUCK:

“An oil tanker carrying 52,000 metric tons of petrol for PSO has been awaiting berth at the Karachi Port while another vessel is expected to reach the port tomorrow (Saturday). The tanker should have started discharging by cargo by Thursday but has been delayed due to high tide,” the source said, adding that the situation was expected to improve by Saturday.

THE DEMAND PULL:

The demand for petrol increased in the country after a 27 per cent cut in petroleum prices across the country following a much larger global drop.

The petrol demand has “unexpectedly” increased from 11,000 metric tonnes a day to 15,000 metric tonnes, a source in the Ministry of Petroleum told Pakistan Today, lamenting that several commuters had shifted from using CNG to petrol after the price drop.

SHARE OF BAD LUCK:

Moreover, an unplanned shutdown of Pak Arab Refinery (PARCO), the largest producer of refined petroleum products, for a few days due to power failure has compounded the shortage while a deadly accident involving an oil tanker in which 62 people were killed right outside Karachi has also caused delays in shipment of petroleum products as tanker drivers are hesitant in hitting the road citing their safety concerns.

WHEN PROFITS SQUEEZE:

Furthermore, it has been observed that petrol station owners are not keeping adequate supply of oil with them as they were expecting a further decrease in oil prices.

A petrol pump owner told Pakistan Today, that he was “disturbed” by the sharp decline in oil prices.

“I don’t know what the government is up to. They don’t clear PSO’s dues and don’t even make adequate payments for the supplies. Why should I keep the required 20-day supply at my station when I know that the prices are going to fall further? I have never suffered more losses.”

“If supply is disrupted for even a single day, the pumps cannot cope with demand,” said Pakistan Petroleum Dealers Association (PPDA) spokesperson Khawaja Atif, explaining the shortage.

“Currently only 10 percent of petrol pumps in Lahore are selling fuel. The others are dry. There are only shortages of petrol. Diesel supply has not been affected by this crisis. The situation in Punjab may take till Monday to resolve,” he added.

FURNACE OIL DEPLETING:

More than petrol, officials are worried about dwindling stock of furnace oil, which fuel the fragile power system. “PSO has consumed its entire stock and the power plants are using whatever little is left with them,” said the Petroleum Ministry official.

“For now we are managing bit by bit, but after week or two the country will be completely dry in all products,” said one PSO official.

“None of the ministers are ready to confront the reality. Everyone wants to be the person to tell the prime minister that everything is okay. But in fact things are not okay. We will be facing blackouts within the next few days,” said the Petroleum Ministry official.

DEBT ISSUES:

Pakistan relies on domestic refineries for approximately 40 per cent of total consumption. The remainder is imported as refined fuel. Disruptions in the international supply chain have been made worse by PSO, which has a 65 per cent share in the Pakistani oil market, defaulting on its debts to global oil supplies, largely due to the inter-corporate circular debt that has financially crippled the energy sector.

The government has announced that it has released Rs 17 billion, out of the hundreds of billions owed by state-owned power companies, to PSO to help resolve its financial crunch. PSO currently stands in default of Rs 110 billion in letters of credit to its international suppliers.

BUT HOW DID IT ALL START?

Shortly after coming into power, the PML-N government conducted what was at the time the largest retirement of the circular debt ever done until then.

In one go, they paid out close to Rs 500 billion to the power producers, and as the funds worked their way through the chain, around Rs 235 billion landed up on the books of the state-owned oil marketing company, significantly easing its liquidity crisis and getting fuel imports started again.

The energy sector was running on empty at the start of the year even as the Water and Power Ministry sought increases in fuel supplies to some plants.

The blackouts became unbearable, exceeding 20 hours per day in major metropolitan centres as stocks of furnace oil ran dry and the interim government was unable to make decisions like diversion of gas to power plants to keep them running.

In mid 2014, the company was threatening to halt fuel deliveries to PIA because Rs 12 billion worth of payments on previous fuel deliveries was outstanding.

By December, the company lost all access to supplier credit and banks began to refuse all loans, meaning it became unable to open LCs [letters of credit] to pay for oil shipments. All existing tenders were cancelled.

On December 30, the managing director again wrote to the secretary petroleum, saying the company’s receivables stood at Rs 198 billion and the company had incurred penalties of approx Rs 250 million on account of delayed payments of Rs 50 billion to banks, $1.8 million as demurrages and suppliers claiming about $6.4 million for damages.

“In view of the above situation PSO is not able to open further LCs as its credit limits stand exhausted and the LC lines of Rs 110 billion are blocked. PSO is therefore left with no option but to freeze its business with the power sector once current supplies have been exhausted,” the PSO directed lamented.

The company warned the secretaries of petroleum and water and power ministries that existing tenders for cargoes of furnace oil “cannot be followed up”.

On Jan 1, Reuters ran a report, quoting oil traders in Singapore, saying PSO has reduced its orders for low sulphur furnace oil deliveries in the February and March period to 120,000 tonnes, down from 715,000 tonnes in the same period last year.

So the power sector was running on empty at the start of the new year, running down existing stocks even as the water and power ministry sought increases in fuel supplies to some plants.

Kapco’s fuel shipments were requested to be taken from 1,500MT to 4,500MT per day, while Hubco was to be taken from 5,000MT to 7,000MT. At the enhanced supply level, stocks would last less than two weeks for both plants, the PSO MD warned on Dec 30.

Moreover, since the company “cannot selectively honour” only those payments related to retail fuels, such as petrol and diesel, while defaulting on payments of power sector fuels like furnace oil, the company further warned that continued default on its obligations “may attract the cross default clauses of our financing agreements”, leading to “further restrictions on PSO’s financing lines”.

Today, the resultant fuel shortages are already showing up at the pumps. Furnace oil stocks are still larger than those of retail fuels, so the power sector still has a few days left before large-scale shutdowns materialise. But default from the power sector is hampering the ability to arrange smooth supply of retail fuels as well, an example of how the circular debt can cross over into areas other than power and begin to shut the country down.



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3 Comments

  1. OUTSPOKEN said:

    SHORT ON MORALS ALSO !!!!!! LAHORI PUNJABI SUNNIES KAAFIRS MISRULE PAK-ISTAN ==CIVIL SERVICES ARMY BUSINESS POLITICS !!!!!!!!!!!!!! KILLERS COWARDS … KILLING SHIAS CHRISTIANS SINDHIS BALOCHIS PATHANS – HINDUS SIKHS !!!!!!!!!! STILL NO SHARTAGES OF ATOM BOMBS ..FOR WHOM ??? ATOM BOMBS AGAINST INDIA ..THEN INDIAN ATOM BOMBS ON LA HOARE..

  2. Az said:

    Pakisan business is worse than pakistan politics. If its not mass corruption is mass dis organisation lack of planning failure to forecast and absolutely no contingency planning.

  3. Bhutto said:

    OUTSPOKE IS AN INDIAN MEDIA AGENT. WORKING FOR NARINDRA MODI. BEWARE. HES NOT MUSLIM OR PAKISTANI! FIRE WORSHIPPING SNAKE EATING COW LOVING *****

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