Fuel shortage feared as subsidy payments stuck in pipeline

ISLAMABAD: Oil sector has warned of acute fuel shortage if its price differential claims (PDC) are not cleared on time, petrol volume in white oil pipeline is not increased fast, and timely payments under petrol IFEM (Internal Freight Equalization Margin) are not ensured.

“If this situation continues to stay unabated, then industry will not be able to meet the country’s fuel demand,” said Oil Companies Advisory Council (OCAC) in a letter to the country's energy watchdog.

The OCAC said dragging feet on this triad of actions would worsen the cash flow situation of the oil marketing companies.

Inaction on the newly-installed government’s part may not only aggravate the cash flow crisis of oil marketing companies (OMCs) but also diminish industry’s capacity to meet the fuel demand of the country, mounting an undesirable burden on supply chains across the country.

Appreciating the Oil & Gas Regulatory Authority’s (OGRA) role in ensuring PDCs reimbursement to OMCs and revision in the methodology for calculation of premium on high-speed diesel, OCAC rang these alarms in a communication, dated April 13, 2022, to the chairman of the authority.

Regarding reimbursement of PDCs, the council said Rs11.73 billion, allocated and approved for the period of March 16-31, 2022 was yet to be transferred to the assignment account being managed by state owned oil marketing company—Pakistan State Oil (PSO).

“It is pertinent to mention that majority of industry's claims for the above mentioned period have already been submitted with OGRA and urgent disbursement of the allocated amount (Rs11.73 billion) is imperative to ensure reimbursement to the industry.”

In addition to the above, PDCs of Rs34.19 billion are expected for the period April 1-15, 2022; however, to date, approval for the same from the competent authority has not been initiated, said OCAC in the letter.

Coming to the issue of white oil pipeline petrol adjustments in IFEM, OCAC said currently 35 percent of petrol volume was being moved from south to upcountry -allocated to white oil pipeline for the purpose of IFEM computation.

However, due to current port constraints, OMCs are forced to shift petrol vessels from FOTCO to KPT. In the absence of any mechanism for shifting duty paid petrol from KPT to Pak-Arab Pipeline Company Limited (PAPCO), petrol input in white oil pipeline is expected to decline.

The industry raised this matter in the IFEM meeting held on April 12, 2022 and recommended that the 35 percent restriction should be lifted and pipeline allocation should be limited to actual throughput during April to June 2022. However, it was not allowed and pipeline allocation of 25 percent was incorporated in IFEM -to be effective from April 16, 2022.

The oil sector in its letter also urged OGRA to play its role to have the above allocation reviewed and ensure OMC-wise actual pipeline movement is used for computation of petrol IFEM for April-June 2022, adding, this will help OMCs avoid any additional financial burden.

Moreover, OCAC said that a negative adjustment of Rs0.59/liter -petrol IFEM- was passed by OGRA during second fortnight of November 2021, recovery of the same was allowed during January, first fortnight of February, and first fortnight of April, while further adjustment of Rs0.28 per liter (based on current IFEM projection) is outstanding.

The oil industry also appealed to OGRA to incorporate the same in IFEM -to be effective from April 16, 2022.