Govt moves to finalise binding supply terms between refineries, OMCs

KARACHI: The government has initiated the process of finalising a mutually agreed legal framework between oil marketing companies (OMCs) and refineries, aimed at introducing binding obligations in their supply contracts, The News has learnt.

Deliberations will be held with stakeholders from across the oil sector to incorporate key provisions into the agreement, including a take-or-pay clause, officials said.

The move comes in response to an ongoing dispute between refineries and OMCs over the upliftment and import of petroleum products -- particularly high-speed diesel (HSD). Refineries recently raised objections to HSD imports, citing adequate domestic production, even as OMCs continued to secure import permissions.

The Oil and Gas Regulatory Authority (Ogra) has formed a committee to address the matter and has asked both refineries and OMCs to nominate representatives for the body, which is expected to convene its first meeting soon.

Sources said that although OMCs commit to uplifting petroleum products from local refineries during the Product Review Meeting (PRM), they have not been honouring those commitments. Under existing government policy, domestically produced petroleum products are to be uplifted first, according to the established merit order.

In the event of a shortage, Pakistan State Oil (PSO) is authorised to import HSD from Kuwait Petroleum Corporation (KPC) under a long-term government-to-government contract. Other OMCs may only import if shortages persist despite PSO’s imports.

However, sources noted that one OMC remains intent on importing HSD despite sufficient local availability. According to sources, the proposed mechanism will include binding clauses that would require OMCs to uplift available local supplies before resorting to imports. Under the take-or-pay clause, OMCs would be obligated to uplift the quantities allocated in the PRM. Conversely, refineries would be required to share margins with OMCs if they fail to supply agreed volumes despite earlier commitments. This new mechanism has been deemed necessary following months of friction between refineries and OMCs regarding HSD imports.

Sources added that the country currently holds sufficient stocks of petroleum products, with HSD reserves at 604,000 metric tonnes, petrol at 470,000 metric tonnes, and furnace oil at 401,000 metric tonnes.