Energy ministry calls for crackdown to stem Iranian fuel smuggling

KARACHI: The Ministry of Energy has asked the Ministry of Interior and the Federal Board of Revenue to crack down on the rampant smuggling of Iranian petroleum products, which has already forced one refinery to shut down a unit and also threatens refinery upgrade agreements worth billions of dollars.

In a letter, the Petroleum Division of the Ministry of Energy requested the Ministry of Interior and the FBR to take appropriate action to address the issue, which has severely impacted the refinery sector and the entire oil supply chain.

The request was made after the Oil Companies Advisory Council (OCAC) wrote a letter to the Special Investment Facilitation Council (SIFC) about the rampant smuggling of petroleum products two weeks back.

The OCAC highlighted the issue of petroleum smuggling, which threatens the forthcoming investments in refinery expansion and upgrade projects under the Oil Refining Policy for Upgrading Brownfield Refineries, 2023. "This illicit activity not only impacts the economy but also jeopardizes the opportunity for substantial investments in refinery upgrades," OCAC latter said. "The ramifications extend beyond the refinery sector, affecting the profitability of oil marketing companies, dealers, and disrupting White Oil Pipeline operations."

The OCAC said currently, refineries are carrying large stocks of HSD due to the availability of smuggled fuel in the market, leading to a reduction in refinery throughput and production of other petroleum products. "This situation disrupts the entire oil supply chain and requires immediate correction."

"The Ministry of Interior and the FBR are requested to take appropriate and immediate action to address this critical issue."According to the OCAC letter, refineries have linked their investment for upgrade projects to ensure Euro-V diesel and petrol, eliminating the influx of smuggled POL products from Iran on a sustainable basis. Otherwise, the refineries' expansion and upgrade would be economically unviable, as the investment is planned based on optimum capacity utilization. "The smuggling of petroleum products, if it continues, would seriously question the viability of these projects, forcing prospective investors to review their decisions."

Refineries plan to invest $5-6 billion in the upgrade; however, Iranian smuggled products have severely affected their operations. Smuggled diesel from Iran has captured the market, leaving the refineries with huge stocks of HSD.

Attock Refinery Limited had to shut down its main unit a few days ago due to the large stocks of HSD, and other refineries are facing problems running operations due to the non-lifting of HSD, whose stocks have surged to over 650,000 tonnes in recent days.