Tug-of-war between GO, refineries worsens over ‘unfair market practices’

ISLAMABAD: The tug-of-war between GO (Gas and Oil Limited) and refineries over unfair market practices has worsened.

The GO has also written to the Ogra chairman for a thorough investigation on the adverse impact of smuggled fuel discounts on the oil industry in Pakistan to prevent losses to both the exchequer and the industry and to connect these discounts offered by various OMCs with smuggled fuel is a misleading and pedestrian tactic intended to obscure the issue.

This has also been figured out in a letter to Masroor Khan, Chairman, Oil & Gas Regulatory Authority (Ogra), dated August 03, 2024, by Zeeshan Tayyeb, Chief Operating and Financial Officer, Gas and Oil Pakistan Limited (GO).

Earlier OCAC (oil companies’ advisory council) on August 1, 2024, wrote a letter to the Ogra chairman against the GO without mentioning its name for allowing an OMC (oil marketing company) importing of HSD of 15000 MT which increased to 40,000 MT per month and selling it at a discount rate of Rs10 per liter causing unfair market practices.

However, under the new scenario, the chief operating officer of GO reminded the Ogra chairman that as Pakistan remains a net importer of both crude oil and refined products, our domestic refineries are reliant on imported crude to sustain operations. Despite the introduction of high standards such as EURO-V for imported gasoline and gas oil, our local refineries continue to produce below these specifications, with no clear timeline for nationwide compliance with the government’s elevated standards.

“It is crucial to note that refineries establish supply agreements with Oil Marketing Companies (OMCs) and typically decide on volumes to be distributed bi-monthly.

Many refineries have longstanding relationships with older OMCs, influenced by either ownership or historical ties.

It is observed that during periods of rising prices, refineries prioritise their established partners, whereas, in a declining price environment, they seek to distribute their allocations to other OMCs with whom they have limited or no prior relationships. Refineries have attempted several bans on import of refined products to ensure local refinery utilization,” said Zeeshan Tayyeb.

He continued, “During the onset of COVID-19 in March 2020, local refineries successfully lobbied for a ban on imports, citing local capacity.

This move, although beneficial for the refineries due to cheap crude, resulted in the most significant shortage in the country.

Without this import ban, the public would have benefitted from lower prices by a mile and uninterrupted supply during those times.”

Highlighting GO, Zeeshan Tayyeb reiterated that Gas and Oil Pakistan Limited has consistently utilised its allocated products from local refineries before seeking import approvals, maintaining an uninterrupted local supply chain.

The approvals granted to GO by Ogra for May and June represent approximately seven days of sales for the company, or less than one day’s industry sales nationwide.

For July, this represents less than three days of sales for the industry.

“With a network of over 1,200 outlets, nearly double the number since the COVID era, GO is committed to fully servicing its network, which has faced operational challenges due to liquidity issues from government receivables related to sales tax, freight, and forex losses.

However, with some receivables now released and a landmark investment from Aramco, GO is poised to reclaim its market share and secure supplies for

its 1,200 retail outlets,” he said.

“GO’s restoration of full supply capabilities to its outlets will naturally result in a loss of market share for OMCs that had benefited from GO’s previous liquidity challenges. This shift is inevitable as GO’s financial situation improves and its retail network expands.