Ministry seeks Rs10 bn to build strategic oil storages

ISLAMABAD: Ministry of Petroleum and Natural Resources has taken initiative to follow national strategic oil stocks policy and asked finance ministry to provide financing of Rs10 billion to build national strategic oil storages to cater for fuel requirements of armed forces in situations of war, floods and earthquakes.

Top mandarins told The News that Ministry of Petroleum and Natural Resources had sent a summary to finance ministry based on the input of Pakistan State Oil (PSO) seeking the immediate release of the Rs10 billion to build the storages at scattered points across the country as per the demand of armed forces.

The official said that PSO, facing the circular debt of Rs210 billion, was not in a position to arrange Rs10 billion from its own kitty and therefore, the petroleum ministry had asked the finance ministry to provide the said amount so that PSO could acquire the land and build the infrastructure for topping up the storages. However, the officials did not share the details about the points across the country where the storages would be constructed and also remained hesitant to share as how much the oil stock would be piled up in the said storages.

The officials said, “Maintaining the storages with fuel for longer time is an uphill task as the fuel starts losing its quality if it is not consumed on time and sludge starts appearing in the storages. So maintaining the stocks is not a challenge, but the keeping the quality of the products intact is the real task that factually requires sizeable cost.”

However, PSO says it’s commercial entity and is responsible for maintaining its all storages to cater for commercial needs of the country.PSO had earlier the fiscal cushion to maintain the strategic stock but when the privatisation process of PSO started, that fiscal cushion had also be taken away.

The petroleum ministry official also unveils while quoting the PSO’s apprehensions that were expressed in a meeting held some months back with officials of armed forces saying that defence sector gives its 60 percent business of motor gasoline and other lubricants to private oil marketing companies and does not ask them to also build the strategic stocks and on this revelation, the representatives of armed forces acknowledges the fact and promised to allay the concerns of the PSO. 

However, this is the bitter reality that Pakistan is a country wherein even after lapse of 69 years since its emergence; there is still no policy on strategic fuel storages.

The submission of OCAC (oil companies’ advisory council)-- representative of all oil marketing companies clearly mentions that strategic reserves are permanently held for non-commercial reasons which are used to provide safeguard against external blockades in time of war. The said fuel stocks also provide safeguard against the internal impediments such as flood and disasters. And in case of oil industry disruptions because of refineries’ outages and pipeline break downs, the strategic reserves are used in the country.

The strategic fuel reserves are separate from the commercial stocks but these can be utilised by oil industry in time of need. The study carried out by GHQ says that Pakistan needs to develop its national strategic stock of 45 days.

The EU member states are required to hold strategic stocks at higher of 90 days of average net daily imports or 61 days of average daily inland consumption in order to mitigate a supply crisis. Germany maintains 90 days through a federal body with refineries, OMCs, government as members.

So much so, Netherlands has 90 days stock that is maintained through an independent non-profit body. And UK has 67.5 days of net consumption where the OMCs (oil marketing companies) manage strategic storage. However, responsibility and ownership for maintaining strategic stocks resides with the governments, with the industry cooperating in implementation of the policy. In all the international models, the cost of strategic storage is recovered as a charge or levy passed on to the end-consumer on all inland sales.

The Oil and Gas Regulatory Authority (Ogra) in its correspondence has also asked the Ministry of Petroleum and Natural Resources to thrash out the plan for increasing the fuel storage capacity of the country. The relevant officials in the ministry also confirmed the development saying the ministry had started shaping up the plan to increase the country fuel storage capacity to 45 days.