Oil scam — a case of sheer incompetence and bad governance

ISLAMABAD: The present oil crisis is all about the sheer incompetence and bad governance of the government as neither Prime Minister Nawaz Sharif nor any of his cabinet members, including the petroleum minister and even the secretary petroleum, had any intimation of the looming serious petroleum crisis.
Background interactions with official sources reveal that neither PSO nor the concerned wing (DG Oil) of the Petroleum Ministry had any idea where Pakistan was heading and how seriously the oil shortage was going to hit the country.
Everybody from Prime Minister Nawaz Sharif to Petroleum Minister Shahid Khaqan Abbasi and even the top mandarins of the Oil Ministry were caught unguarded. Sources said that the oil shortage is also going to badly affect the electricity production.
Interestingly, totally unaware of the looming petroleum shortage, the Petroleum Ministry till recently has been focusing on the Furnace Oil’s import. Sources believe that PSO has a major role while the Pakistan National Shipping Corporation also contributed to this situation. The inaction at the top-most level in the government also had contributed to this unprecedented embarrassment faced by the country as the MD PSO, now removed, was appointed on an ad hoc basis for three months when this government came into power but allowed to continue till this scam hit the government.
The prime minister had no time to appoint a new MD PSO on merit during the last 20 months despite a speedy decline in the business of PSO.Sources said that PSO had planned the import of four cargoes of 50,000 MT each during the month of January 2015. The import by other oil companies, which is around 75,000 MT, was in addition to the imports by PSO.
PSO imports oil through the Pakistan National Shipping Corporation. As per the agreement signed between PSO and PNSC, the rates of shipment were to be revised every year in December to be applicable from 1st January of the next year. Due to various cases filed in the Sindh High Court, the rates were not revised owing to which the PNSC started to delay the availability of vessels to PSO.
The sources said that for the month of January, 2015, PSO awarded two vessels with the loading window of 2-4 January from the UAE and 3-5 January from Singapore. PSO advised the PNSC to provide vessels as per the provisions of the agreement. However, PNSC failed to discharge its obligation and vessel for the UAE loading was provided on January 6.
As per the industry practice, any vessel arriving late misses its right for berthing and has to wait. The vessel was berthed on 10th January and sailed on 12th, arriving at Karachi on the 15th after high tide and was berthed on 16th January. The dispatches to upcountry were started immediately.
Similarly, the vessel for Singapore loading was provided after 10 days delay and the vessel arrived at the loading port on 15th January instead of 5th January. The vessel was loaded by 18th January and is expected to arrive on 28-29 January as the sailing time from Singapore to Karachi is 10-11 days depending on weather.
The PNSC was informed time and again by PSO about the timely provision of vessels for the oil imports and its consequent effects on the country’s fragile supply chain but they failed to act as a responsible business partner, which resulted in delays in the arrival of above- mentioned two vessels.
PSO immediately inducted another tanker, which was expected to go on loading on 18th January at the Oman Port and was expected to arrive at Karachi on 24th January, 2015.
The sources said that the decrease in the prices of petroleum products increased the sales and average sales were 15,000 MT/day as against an average of 11,000-12,000 MT. This resulted in depletion of oil stocks at PSO storages. The Parco refinery experienced an emergency shutdown on 6th January due to tripping of 11 KV lines, which halted the refinery operation for 3-4 days and reduced the availability of oil from the refinery.
Parco is the largest refinery in the country and supplies more than 2,000 MT per day to the industry. The reduced availability from Parco was also a contributing factor, which contributed to shortages of PMG in certain areas of the country.
PSO is the largest oil marketing company in Pakistan which enjoys an overall market share of 67% in the country. Soon after coming into power, the PML-N changed the managing director and placed Amjad Pervaiz Janjua as Acting Managing Director on July 29, 2013.
The new Acting MD neither had the knowledge nor the experience to run the organisation of this magnitude. The result is that the performance of the organisation is on a decline for the past 20 months.
Janjua was appointed for a period of 90 days or till the appointment of a permanent MD but he was continuing even after 20 months despite the rapid decline in the performance of the company.
The sources said that the power sector circular debt, which was Rs49 billion on July 2013, increased to over Rs190 billion, an increase of Rs140 billion.The PSO recievables from PIA were less than Rs1 billion in July 2013, which have soared to Rs12.8 billion today. The company is losing market share heavily and other companies are increasing their market share. PSO’s market share dropped to 62% in 2013-14.
In High Speed Diesel, the company lost sales of 200,000 MT in July-December 2014 over the same period last year and lost 10% market share. In PMG, the company also lost 2% market share. PSO also defaulted with local banks continuously and all the banks have stopped doing business with PSO as the company had defaulted on its commitment.
Due to this, PSO’s borrowing touched a maximum of Rs284 billion. The non-receipt of funds resulted in defaults on local as well as international LC payments. Since October 2014, despite SOS calls, no effort was made to resolve the issue either by Water & Power or Finance ministries, the sources said.
These sources said that the situation is reaching a point where defaults are occurring on a daily basis and the amount stands at Rs42 billion. The declining trend in international market is also not helping as PSO’s collection from the HSD and PMG has been slashed by 25%.
“We have reached a point where no international bank will be willing to work with Pakistani banks due to these defaults and not only oil but all imports to the country will be stopped,” a source warned, insisting, “That situation must be avoided at all costs.”
The government, it is said, released Rs15 billion on 14th January that was paid to the National Bank. The stocks of Fuel Oil with PSO exhausted on 13th January and the next vessel is expected by the end of this month. The country should brace itself for prolonged loadshedding this week when the stocks at power plants get exhausted.It is said that the true picture was never shown to the government by PSO.