Circular debt impacts fuel supply chain

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The unending power sector circular debt has impacted the entire fuel supply chain in Pakistan, choking ports, refineries and down to railway bogies and tanker lorries.

“Fuel storages are full to capacity, movement of tankers and bogies has come to a halt and more than 15 ships full of fuel are waiting at the port for unloading as the power sector struggles to make payments or at least uplift the product,” said a senior official, according to media reports. This was despite the cancellation of a few import orders by the Pakistan State Oil (PSO).

Furnace oil stocks in storages stood at more than 800,000 tonnes, the highest in the country’s history and enough for more than 40 days of average consumption.

Because of the huge stocks, local refineries are bringing down their capacity utilisation that will cause a shortage of other products like petrol, diesel and jet fuels. An official said the storages of refineries and oil companies were also full to capacity at the moment.

 “If the situation is not brought under control immediately, refineries would be forced to shut down because there is no way to produce petroleum products without furnace oil off-take,” a refinery official said while talking to media. “The situation is very precarious at present and our operations are under threat,” he said, adding that jet fuel for commercial planes and defence aircraft is already in the trouble zone.

In addition to independent power producers’ (IPPs) claims of over R s414b non-payments to oil companies is reported to be in excess of Rs 300b, including Rs 270b receivables of PSO alone.

 Officials at the ministries of petroleum and finance blame the power sector for ill planning leading to the development of new dimensions to the crisis – oversupplies, storage constraints and logistic problems. The power ministry officials, on the other hand, blame the finance ministry and the power sector regulator for under-budgeting power sector subsidy and unrealistic tariff, respectively.

“Yes, there is a problem today and we are trying to manage it, but storages would take time to come down,” said Minister for Petroleum Shahid Khaqan Abbasi. “There needs to be efficient management and effective planning. The power sector management should have been better.”

He said that PSO planned fuel imports on the basis of power sector’s demand. The import process involves 60 to 90 days and orders once made cannot be cancelled. But fuel off-take by the power sector is not according to their demand.

The minister said the whole issue should be taken up in a holistic manner and the National Electric Power Regulatory Authority (NEPRA) should also be realistic and allow efficiency gains to companies to let them perform instead of passing these on to consumers.

A petroleum ministry official told media that the power sector had been demanding 16,000-18,000 tonnes per day for consumption, but power plants were not lifting more than 8,000-9,000 tonnes.

The official went on to say that the consumption had dropped by 30pc over the past year due to better availability of natural gas and higher LNG imports, but the power ministry did not plan accordingly, despite warnings by the petroleum ministry and the Oil Companies Advisory Council (OCAC).

“Around 15 ships are waiting for offloading at ports and demurrage charges are piling up,” he said, adding that the Fauji Oil Terminal Company’s (FOTCO) management had also lodged complaints with the top leadership for port congestion on both sides – by tanker lorries and ships.

According to media sources, the finance ministry was reluctant to provide more funds out of its kitty until the next year budget to contain fiscal deficit.

A finance ministry official, however, said the ministry should not be expected to pay for bad planning and double fuel supplies. “Why should we pay for 40 days of fuel stocks when the mandatory requirement is a 21-day coverage?” he asked.