Supply of furnace oil to power plants still plugged as refineries offer different prices 

Rationalisation of FO prices may facilitate it to become viable, match the merit order and enable increased consumption for a limited period, eventually easing the ullage issues at refineries

All five local refineries have offered different prices for the sale of furnace oil (FO) to power plants, and the petroleum division’s directorate-general (oil) has requested the power division to take appropriate action in this regard.

The director-general (DG) of oil, through a letter on January 11, forwarded the responses of refineries on a proposal to reduce the furnace oil price, and also communicated the prices offered by different refineries for supply to power plants.

According to the DG of oil, National Refinery Limited (NRL) offered a price of Rs 81,000 per metric tonne (/MT), Pakistan Refinery Limited (PRL) Rs80,000/MT, CNERGYICO – Rs86,000/MT and Pak Arab Refinery Limited (PARCO) at Rs83,000/MT price for sale to power plants.

“Foregoing in view, power division is requested to look into the matter for appropriate action with regard to merit order for supply of FO to the power plants keeping in view the severe ullage issues faced by local refineries, especially PARCO,” according to the letter.

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All five refineries were earlier informed by the government that a meeting of the Ministry of Energy held under Minister Hammad Azhar discussed the state of supply to power plants and the ullage issues of refineries.

Due to the ample ullage available with the power plants and unfavourable position of FO in the merit order, it was directed that the refineries may be approached to consider the possibility of rationalising the price of furnace oil by reducing their margins or through appropriate discounts. 

The move may facilitate FO prices to become viable, match the merit order and enable increased consumption for a limited period, eventually easing the ullage issues at refineries. 

“The refineries are therefore requested to examine the matter and furnish their views/feedback on the matter by January 10,” said a letter from the DG of oil. In its response, CNERGYICO highlighted that the refining sector was already under severe cash flow stress and further discount in FO price was economically unsustainable.

The petroleum division had also been asked by the refineries to convene a meeting of all relevant stakeholders including local oil refineries and the power division in order to agree upon a comprehensive and sustainable solution to the ongoing issue. 

CNERGYICO also suggested that the Ministry of Energy should assist National Electric Power Regulatory Authority (NEPRA) in amending the merit list of FO fired power plants which will enable independent power producers (IPPs) to pursue furnace oil stock build up as per their agreements with the government.  

Similarly, Pakistan Refinery Limited, National Refinery Limited and Attock Refinery Limited in their response also rebuked the suggestion of reducing furnace oil prices saying it was not viable.

According to PRL, its ex-refinery price of furnace oil for the first two weeks of January 2022 was Rs86,000/MT against an import parity price of Rs92,434/MT and monthly average FOB price of reference crude (Arab Light for December 2021) of approximately Rs101,000/MT. “The above price comparison clearly shows refineries’ loss, and any further reduction in the price of furnace oil will further compound sustainability challenges,” the PRL had said in its response to the petroleum division.

PRL stated that, “the proposed refinery policy, if approved, will comprehensively address refineries’ sustainability challenges and will also support the government’s endeavours of consumption of environment-friendly fuels”. Further adding “It is imperative that the draft refinery policy be approved without any further loss of time by the concerned authorities,” in its letter to DG oil.

Similarly, NRL mentioned in their letter that it was extremely difficult to consider any further reduction in the ex-refinery price of furnace oil, elaborating that the proposed suggestion of discount on furnace oil price will deteriorate the companies’ financial position and ultimately lead to suspension of operations.

“It is, therefore, requested that an economically viable and appropriate way forward shall be arrived at after discussion with the industry so that furnace oil offtake can be ensured on a regular basis,” summarised NRL in its letter.

Attock Refinery Limited, in tune with PRL and NRL, also said that considering any further discount in furnace oil pricing would further aggravate the already precarious situation, and the proposal of pricing adjustments was not a financially viable option.

 

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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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