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January 9, 2019

Government notifies ban on import of fuel oil


January 9, 2019

ISLAMABAD: The government on Tuesday formally notified an immediate ban on import of furnace oil (FO) and ordered all the refineries to utilise billions of rupees in annual deemed duty collected on petroleum products to upgrade their refining facilities.

The government also ordered immediate reduction in the FO production to a minimum, and to enter into commercial agreements with power producers for utilisation of their capacity for FO storage, a statement issued by the Petroleum Division said.

In future, all refineries would ensure that FO production was the minimal by-product of Crude Oil processing, the government ordered. The oil refineries should undertake production of additional storage facilities as well as utilisation of the proceeds of deemed duty for up gradation/modernisation of their facilities.

In the notice, the government imposed ban on import of FO with immediate effect, except for the K-Electric.

Previously, in similar instances, the government, via the Economic Coordination Committee (ECC) and the cabinet, has allowed the K-Electric to run their plants on residual furnace oil (RFO) instead of gas from the Sui Southern Gas Company, and has picked up the difference of cost as subsidy under the Gas Load Management Plan (GLMP).

In light of the current situation, sources said the ECC and cabinet have been requested that decision for diversion of gas to other sectors should be reviewed and urged to maintain the allocated priority of gas to the power sector.

It has been requested, that in case gas was required to be diverted, running cost of equivalent MW of generation of RFO be subsidised, the sources added.

It is worth noting that the minister for power division has seen and authorised the submission of the summary to the ECC.

The decision taken to cut the import bill by banning fuel oil import would also impact the fragile power sector of the country.

In Pakistan, 54 percent of total power generation depends on oil or gas, while of these, 26 percent operate on re-liquified natural gas (RLNG).

“With the introduction of RLNG in the power system as fuel, sector dependency on imported RLNG as a fuel for generating electricity has increased manifold,” sources said, adding that since water was not available in reservoirs, after coal, nuclear, and local gas, power plants were despatched RLNG.

They informed that no RFO generation had been envisaged for the months of November 2018 to March 2019.

However, they added that to maintain strategic reserve at RFO-based power plants, and to handle the high inventory of furnace oil at refineries, RFO and Low Sulphar Furnace Oil (LSFO) supplies were requested at Muzaffargarh, Jamshoro, HUBCO, KAPCO, at a steady rate. “This was communicated to the Petroleum Division on November 22, 2018,” sources added.

The gas requirements presented during the CCOE meetings held on November 28, December 5, and December 26, 2018 were based on the forgoing parameters, and were 393, 495, 405, 857, and 1,043 MMCFD, they said.

But, during December 2018, only 180 to 200 MMCFD gas was allocated to the power sector, which was sufficient for generating only 1,200MW average instead of 2,600MW planned and projected.

This, the sources said resulted in a daily average of 1,600MW RFO-based generation through RLNG between December 6, 2018 and January 1, 2019.

Sources said the RFO consumption which started from 4,200 MT/day to about 18,000 MT/day till January 1, 2019, has adversely impacted the stock strategic building exercise for plants running during the high demand months.

This situation they cautioned would further aggravate with the diversion of gas required by the power sector to the other sectors, which were at low priority for gas.

“This diversion with the differential that has already been accrued due to running of RFO-based power plants will result in about Rs10 billion of differential to be passed on the end consumer in form of Fuel Price Adjustment till January 12, 2019,” sources said.