Circular debt caused January petrol shortage: OCAC officials

KARACHI: Severe petrol shortages that had hit part of Punjab last month was primarily an outcome of the circular debt that choked cash flows of the country’s biggest fuel distributor, Pakistan State Oil, an industry group’s top official said on Friday.
State-run PSO has a 49 percent share of the country’s gasoline marketing business, ahead of major multinational players like Shell Pakistan and Caltex Pakistan.
“A number of factors were behind the January petrol shortage, including circular debt, consumer behavior, weather conditions in Punjab and off-scheduling of arrival and berthing of tanker vessels,” a senior official at Oil Companies Advisory Council (OCAC) briefed newsmen, while requesting anonymity.
The fuel shortages that led to a crisis like situation in Punjab followed when the vicious cycle of circular debt bogged down energy supply chain in the country. Power distributors delay payments to generators who, in turn, face difficulty in clearing dues of fuel suppliers. Importers in return cut month imports.
In December last, a bank dishonoured a PSO’s letter of credit due to nonpayment of outstanding amount by the company. The state-owned PSO had whined nonpayment of at least Rs200 billion by the government institutions and departments to the company.
The official said they foresaw a surge in petrol demand as a result of falling oil prices and apprised the relevant quarters of the development.
The dramatic fall in the global oil prices, which led to a monthly downward revision in domestic prices, acted like a giant tax cut to the consumers and they took advantage of low prices to spend more. Oil price has fallen by more than 50 percent since last June.
Another OCAC official said tankers, carrying fuel, had missed their schedule, while weather conditions in Punjab had adversely affected supplies. “In spite of that, the countrywide buying of motor gasoline noticeably grew 32 percent year on year to 399,000 tons in January 2015,” he added.
He informed that demand of petrol, which was recorded at 12,300 tons/day in December 2014, surged to 15,500 tons/day in January 2015 and is likely to settle at 16,500 tons/day in February.
The official said a total of 338,000 tons of petrol (mogas) had been planned for February.
Talking about the 20-day cover of supplies, he said this is not a definitive benchmark. “A review meeting attended by OMCs, ministry officials and other stakeholders held in the beginning of every month mulls the estimated demand and the import requirement. Based on these numbers, the supplies are managed. The ministry allows OMCs to keep 10 to 12-day supply cover,” he added.
An official at the Shell Pakistan said all OMCs make imports, and in January alone, Shell imported 60,000 tons of mogas, which was distributed among all the OMCs. Criticising the fuel pricing formula, which is based on the procurement cost of PSO in the previous month, the official said procurement costs of all OMCs should be included in the fuel pricing basket to avoid the possible price differential losses to other OMCs.
The OCAC officials said in case of a crisis or emergency, the instant reaction should be to deal with it instead of passing the buck.
Industry disagrees with the government’s knee-jerk move to expel a number of key office holders on the pretext that they were responsible for gasoline shortage, they added.
In the aftermath of the crisis the government suspended nine officials, including PSO’s MD and sent Saeed Ahmed, chairman Oil and Gas Regulatory Authority on a three-month forced leave.