Refineries issue SOS call fearing shutdown over high stocks of HSFO

IPPs not maintaining stocks in violation of agreement with govt despite dues being cleared  

ISLAMABAD: Fearing forced shut down owing to non-lifted High Sulphur Furnace Oil (HSFO), local oil refineries have approached the Petroleum Division to take measures for lifting the heavy fuel oil to safeguard the country’s strategic assets.

According to sources, refineries have informed the federal government that although payables of Independent Power Producers (IPPs) are being cleared through installments, the IPPs are not maintaining HSFO stocks of 20-30 days in violation of their agreement with the government despite the fact that they have so far received total Rs314 billion.

In a letter, refineries have lamented that all power plants’ storage is currently under utilised which is severely affecting all local refineries, which are heading towards a forced shutdown that will impact motor spirit (MS), high speed diesel (HSD) and jet fuel availability.

Further, in a letter to DG (Oil) Petroleum Division, Pakistan State Oil (PSO) has also pointed out that actual lifting by IPPs since July has been significantly short which has resulted in the over accumulation of stock inventory.

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“You are requested to kindly take up the matter with MoE (Power Division) to advise power plants to lift the product for stock build up as the current stock with these IPPs especially HUBCO, TPS Muzaffargarh and TPS Jamshoro are negligible whereas these power plants should maintain at least 21-30 days’ stock in order to avoid any untoward situation,” the letter said.

Sources said that before approaching the DG Oil and informing him about the availability of high stocks of HSFO, refineries have analysed the market situation and approached every customer to lift the product. However, all of these customers have refused to comply due to non-consumption by IPPs.

 “All in all, the situation requires an immediate action from the Ministry of Energy to compensate and accommodate the refineries to ensure continuity of operations. We reiterate that until and unless IPPs increase HSFO consumption, there is no way to keep up the refinery operations,” the letter warned.

Profit learnt that local refineries had also considered exporting the product and also floated a tender in this regard; however, the option is not viable due to reasons including port congestion issues at KPT and FOTCO, negligible demand in international market and huge financial losses in order to carry above 30KT stocks in storage for over a month as their laycan is 25-27 December, 2021.

Sources further informed that IPPs are not holding stocks as per the fuel supply agreement, an integral part of the Power Purchase Agreement, on which they are pocketing 15 per cent internal rate of return (IRR) on equity and 70pc take or pay on capacity.

The affected refineries have urged the Energy Ministry to ensure that they use the proceeds to replenish their HSFO stock as a matter of priority and per their contractual commitment.

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Ahmad Ahmadani
The author is a an investigative journalist at Profit. He can be reached at [email protected]

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