OCAC requests DG Oil to resolve furnace oil overload issue at refineries

Shortage of petroleum products looms over country as IPPs disregard agreement with govt despite dues being cleared

ISLAMABAD: Independent Power Producers (IPPs) are allegedly under-maintaining stocks of High Sulphur Furnace Oil (HSFO) and Low Sulphur Furnace Oil (LSFO), with reportedly all storages of power plants empty or having a back up of only 2 to 3 days at the moment, following which the Oil Company Advisory Council (OCAC) has requested the Petroleum Division for ensuring that furnace oil is lifted from refineries.

As per details, in a letter dated December 3, the OCAC ha written to the director general Oil Petroleum Division saying that local oil refineries are the backbone of the country’s energy security, supplying over 11 Million Metric Tonnes (MMT) of various petroleum products but due to non-uplifting of fuel oil and limited storage, they are forced to reduce and in some cases, almost shut down crude processing which will affect the availability of the petroleum products, eventually disturbing an already fragile supply chain.

The OCAC pointed out that the government, during this year, has so far made substantial payments to IPPs that are bound to keep mandatory stocks as required according to Fuel Supply Agreements (FSAs) with OMCs.

On the other hand, the refineries are planning to export fuel oil at a great financial loss as they cannot hold the accumulating stocks of furnace oil. “This export will cripple an already overburdened port infrastructure and the industry will face huge demurrages as well,” the OCAC letter warned.

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The OCAC stated that for ensuring availability of all the other petroleum products, refineries’ smooth operations is key, therefore, the DG Oil must approach the Power Division for immediate placement of orders by IPPs on OMCs.

OCAC also highlighted that OMCs are to consume finished products produced by refineries before importing any new stock and that only deficit volumes can be imported.

“On the firm demand of Power Division, OMCs were allowed to import LSFO/HSFO during July-November 2021. But non-uplifting of the committed quantities by the power producers has resulted in a stock build up. Therefore, before finalising any new import, locally produced furnace oil may be accounted for. This will result in decreasing the ever building stocks of fuel oil at refineries and improve the availability of other petroleum products,” the letter concluded.

It may be mentioned here that fearing forced shut down owing to the non-lifted High Sulphur Furnace Oil (HSFO), local oil refineries had also approached the Petroleum Division to take measures for lifting the heavy fuel oil to safeguard the country’s strategic assets.

According to sources, refineries had already informed the federal government that although payables of IPPs are being cleared through installments, they 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.

“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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