Oil sector calls for action against $35.6 million monthly loss from smuggled fuel

KARACHI: The oil sector has urgently called for stringent enforcement measures to combat the rampant smuggling of petroleum products, a situation it describes as an existential threat to the industry and government revenue.

"The staggering influx of 4,000 tonnes of smuggled fuel daily into Pakistan, as confirmed by the Oil and Gas Regulatory Authority (OGRA), is bleeding the nation of approximately $35.6 million per month. This national crisis demands swift and aggressive action," said the Oil Companies Advisory Council (OCAC), a representative body of the country’s oil sector, in a letter to the secretary petroleum on Monday.

OCAC said the sales trend of motor spirit (MS) and high-speed diesel (HSD) during the fiscal year 2022-23 starkly resembles the figures recorded during the tumultuous period of the Covid-19 pandemic in the fiscal year 2019-20. "While the decline in GDP growth rate from 6.11 percent in FY22 to 0.29 percent in FY23 may partly explain this downturn; however, unfortunately, the year-to-date sales of MS and HSD have further plummeted by approximately 6.5 percent (July-February FY23-24 vs FY22-23), casting doubts on the veracity of the projected GDP growth rate of 1.7 percent for FY24."

The OCAC said sales figures of MS and HSD in March 2024 exhibit an alarming variance of negative 12 percent and negative 21 percent respectively, against the forecasts established in the product review meeting for the harvesting season.

"Such high negative variances signify a product glut, lower refinery throughput, choking of the WOP, and restrained sales volumes," the letter said. "The illicit trade has disrupted the entire supply chain of petroleum products; adversely affecting the refinery health, white oil pipeline operations, and the profitability of oil marketing companies."

The oil body said that the significant price disparity between legitimate and smuggled fuel, coupled with widespread availability and weak border controls, is causing irreparable damage to legitimate businesses.

"Any hindrance to local POL production necessitates increased imports, resulting in substantial financing costs for OMCs as they operate on razor-thin margins. The Oil Industry continues to lose business to the illicit trade; simultaneously, the government continues to lose revenue from the petroleum levy, customs duty, corporate tax, super tax, etc."

Reportedly, the petroleum retailers have also raised grave concerns about the unabated surge in fuel smuggling to Pakistan, causing them sales and revenue losses.

The letter said that the unchecked proliferation of substandard smuggled petroleum products not only drains the government revenue but also fuels a shadow economy, making it increasingly challenging to monitor and regulate illicit activities.

"The detrimental effects of substandard smuggled petroleum products on the environment, vehicle engines, and safety standards should not be left unattended anymore. The influx of fuel through illicit channels will gravely impact the foreign direct investment required for the upgrade and modernization of refineries under the Brownfield Refinery Policy."

OCAC demanded that robust enforcement measures be implemented to control the expansion of the illicit sector (border control) and conduct well-coordinated, regular nationwide crackdowns in collaboration with federal and provincial authorities and declare smuggling a grave crime, categorized as a punishable offense. "Propose legislation to Parliament, advocating for corporal punishment to deter smuggling and safeguard corporations from its detrimental effects."

The oil body also demanded that the federal/provincial authorities/chief secretaries must mobilize their teams and intensify efforts to curb cross-border movements, ensuring stringent penalties including imprisonment for offenders and the immediate shutdown of illegal petrol pumps and punitive action against them. Besides, they should launch comprehensive anti-smuggling campaigns to raise public awareness and support, it said.