Inquiry commission on fuel shortage: Private marketing companies imported oil despite ban

ISLAMABAD: Despite the ban on oil imports imposed by the government, it is now clear that six oil carrying vessels belonging to the private Oil Marketing Companies (OMCs) docked at Karachi Port and decanted oil during the so-called embargo.

An inquiry commission formed by the government to probe the acute shortage of petroleum products concluded that despite the OMCs’ hue and cry about the ban, the embargo is not the actual reason for the unparalleled fuel shortage in June this year.

The commission said consumers had to pay a lot for the failure of the Ministry of Energy, Petroleum Division (MoEPD). The lifting of the import ban in the end of April coincided with the gradual rise of international prices of petroleum products. The months of May and June witnessed the duplicity of certain OMCs which imported oil but hoarded or slowed down the supply to their retail outlets till the government increased the prices on June 26. General consumers, thus, were denied their rightful gains, the report said.

The report added that the seeds of the crisis were already sown by the MoEPD, Oil & Gas Regulatory Authority (OGRA), department of explosives and a handful of malicious wrong-doers identified in the whole saga.

The findings revealed that in sharp contrast to the rest of the world -- which fully exploited the period between March and May 2020 when international prices of petroleum products were at their lowest level -- the crisis erupted in Pakistan in June.

The sad story of how an opportunity was transformed into a crisis began in March with the irrational decision of import cancellation by the MoEPD spanning over a month. OMCs were asked by the ministry to cancel their cheap international purchases. Instead of forcing the OMCs to lift their local quota of purchases from the refineries, the MoEPD went for the blanket import ban.

The report also said there are 603 illegal retail outlets operating in the country, which have neither been regularised by OGRA nor are owned by the OMCs. These unregulated outlets are not supplied with petroleum products from the OMCs.

Consequently, their only method for getting petroleum products is through smuggling or unlawful purchases from black marketeers, other OMCs or hoarders. Unchecked by any regulatory authority, the OMCs or the district administration, these retail outlets are left with no other choice but to adulterate other hydrocarbon chemicals with MS [motor spirit] and HSD [high speed diesel] or kerosene with HSD. An intrusive probe was not possible given the limited scope and time available to the commission. Hence, OGRA, the MoEPD, OMCs, department of explosives and the district administration concerned must carry out an exhaustive exercise into the operations and subsequent elimination of these illegal retail outlets, the report said.

The report said retail outlets not having the requisite permission pose a serious threat to the public at large. Many of them have been established in densely populated areas which can be the cause of a major disaster at any time.

It said adulteration in petroleum products, especially MS and HSD, is a common practice in the country. OMCs and petrol station owners often mix chemicals into the fuel and subsequently sell substandard fuel to their customers. While the practice increases the profit margins of those selling this fuel, the buyers pay the price as it has adverse effects on the performance of their vehicles. In some cases, contaminated fuel has also been identified as the cause of engines catching fire. Hence the sale of such fuel can be considered criminal negligence. Moreover, the use of such substandard fuel is also an environmental hazard due to its emissions, the report stated, adding that mixing manganese and naphtha in petrol, mixing kerosene, light diesel oil, white spirit etc. in HSD; and the use of VAM, mixed Xylene and N-Hexane are common forms of adulteration.

OGRA inherited the regulatory functions of the oil industry from the MoEPD in the year 2006. For the next 14 years, the report said, the oil industry kept waiting for the new petroleum rules to replace the old ones of 1971. This was an era of legal ambiguity on the division of powers between the MoEPD and OGRA which continues to this day. From 2006 to 2020, OGRA became the breeding ground of OMCs, the number of which has now touched 66. The OMCs got unlawful provisional marketing licenses without developing their mandatory storage and stock facilities. Periods of cheap oil could not be cashed due to the criminal and deliberate failure by the OMCs to maintain a minimum stock of 20 days, the report said.

It said that the failures of OGRA refuse to end. The mushroom growth of illegal retail outlets, the regularisation of these illegal retail outlets, illegal joint ventures of hospitalities, unlawful private storage companies, frequent unpunished violation of licensing conditions by OMCs and many other transgressions show that OGRA specializes in earning discredits. The MoEPD is an equal competitor of OGRA in this regard. No strategic storage, outdated refineries, the ceremonial role of the pricing management committee, being heavily beholden to the Oil Companies Advisory Council (OCAC), a private body, for commanding the oil industry on its behalf – these are just some of the leading discredits of the MoEPD. The rest of the damage was done by the department of explosives, the port authorities, smugglers and adulterers, the report said.

The report makes it easier to understand how a huge opportunity was converted into a crisis. Taking these failures as an example, further crises of this proportion or even worse might occur in the future. A complete overhaul of the oil industry is urgently required, the report concluded.