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May 26, 2019

Petroleum quality


May 26, 2019

A proposal to introduce low-grade petroleum for motorcyclists has left observers confused. While one could argue that the Petroleum Division cannot be faulted for advocating the interests of oil refineries, the proposal before the Senate Standing Committee on Petroleum on Tuesday went against the last two decades of government policy on petroleum quality. Why else would the government have allowed oil refineries to collect around Rs290 billion in duty from consumers over the last decade to upgrade their plants to produce higher-grade and environmentally-friendly fuel? Instead of asking oil refineries why only Rs127 billion of the duty has been invested in upgrading plants, the Petroleum Division appears to be proposing the reversal of the policy. A representative of the oil refineries explained the proposal best when he asked for ‘deregulating’ the refinery sector after questions were raised over why oil refineries were collecting this duty. If deregulation will translate into allowing the supply of low-grade fuel, this is a cost that should not be borne. The need to ensure that the quality of fuel supply is improved is essential, not only for the life of automobiles, but also to reduce air pollution and improve the environment.

The mere fact that a proposal to introduce low-grade petroleum has been made is cause for worry. Advocates have claimed that it would reduce the import bill by around $1.5 billion as well as help utilise the unused capacity of oil refineries, in addition to being Rs10-12 cheaper per litre. Independent reports suggest that it might actually increase the oil import bill. Moreover, such blatant disregard for past policies should not be allowed. Only recently, by ordering the reduction of petroleum products from three to two, the government asked oil refineries to ensure that the quality of petroleum in the market meets a higher minimum benchmark. This is essential given how much air pollution has gripped Pakistan over the last five years. Moreover, the upgrading of fuel quality should not be tied to economic compensation for oil refineries, especially in the form of a duty on consumers. With the Petroleum Division ready to propose a new oil refinery policy, one would hope it is designed to improve the regulation of the oil sector, instead of allowing it freedom to introduce low-quality fuels. The demand to supply low quality fuels already shows that oil refineries are more interested in profits, than performance. Political expediency cannot be allowed to win on this issue.

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