Thursday August 11, 2022

Refineries likely to choose between FO export, shutdown

Sources say refineries would go for shutting down operations as a last resort as they would ponder over to export excessive production of furnace oil

November 30, 2021
File photo of an oil refinery.
File photo of an oil refinery. 

KARACHI: Country’s refineries are considering either exporting furnace oil (FO) or shutting down operations as Independent Power Producers (IPPs) and Oil Marketing Companies (OMCs) do not seem interested in buying the heavy fuel owing to various reasons, The News has learnt.

Refineries, except Pakistan Refinery Limited (PRL), currently non-operational owing to annual maintenance, in their communications to Ministry of Energy, said they were yet to witness any improvement in the off-take of FO by OMCs and IPPs, which was further worsening product’s stock position.

According to Byco Refinery’s letter, one of the major reasons for alarmingly high FO stocks seems to be the negligence shown by IPP’s through their negligible/slow consumption of FO. About IPPs lower FO demand by referencing, letter referred to clause (b) of Section No. 5.14 of the standard IPP PPA format (2006) it is stated that: “The company shall maintain on site an inventory of back-up fuel of 30 days at full load, gas at seven days full load during the period of firm gas delivery, and during any period of non-firm gas delivery, the company shall maintain an inventory of back-up fuel of 15 days at full load”.

However, as per the daily stocks and storage position report by the Oil Companies Advisory Council (OCAC), dated 23rd November, 2021, IPPs across Pakistan hold a storage capacity of approximately 1.3 million tonnes, out of which only 19 percent of the storage is currently being utilised, leaving 80 percent of FO storage unutilised countrywide.

Furthermore, the letter also referred to concerns raised by IPPs in regards to product payments which were difficult owing to low product demand.

This concern is compensated by the government’s current take-and-pay contractual structure with the IPPs, which legally obliges the government to pay off the IPPs irrespective of their HSFO utility.

Hence, there seems to be no valid reason for IPPs to not maintain 100 percent HSFO stocks, which will allow the power division to pay off PSO (Pakistan State Oil) and subsequently reduce their mutual circular debt issue, according to the letter.

Sector sources told The News that total off-take by November 25, 2021 was just 300 metric tonnes, whereas production was around 6000 metric tonnes. Sources said refineries would go for shutting down operations as a last resort as they would ponder over to export excessive production of FO.

However they added that export of FO was financially disadvantageous to refineries as they had to export on discounted rate by adding the cost of transportation, especially in the case of Attock Refinery, Pak-Arab Refinery, and Byco Refinery, which were away from the port city of Karachi.

A high official in one of the refineries said although the situation was bad for the refineries in terms of off-take of FO; however various options were under consideration to deal with the situation.