Pakistan's refineries warn of shutdowns over OMCs' failure to uplift committed quantities

Pakistan’s refining sector has raised alarms about potential shutdowns or reduced operations due to oil marketing companies’ (OMCs) failure to lift agreed-upon quantities from local refineries. In a letter addressed to Ali Pervaiz Malik, the Minister for Petroleum, the country's five major refineries warned that OMCs are increasingly avoiding committed upliftment, particularly when oil prices are declining, while seeking to benefit from price increases, The News reported. 

The refineries stated that this practice undermines PRM commitments, distorts market discipline, and places undue strain on local refining operations. As a result, refineries are faced with two negative options: either reduce throughput or shut down entirely. Both outcomes, they argue, would lead to higher imports, increased foreign exchange outflows, underutilization of domestic infrastructure, and lower tax revenues for the government.

In addition, the refineries are being forced to offer forward pricing to OMCs, exposing them to price risks and reducing refining margins. The sector has been left with no choice but to adopt forward pricing to avoid shutdowns, although some refineries may still be compelled to cut throughput. 

The refineries warned that the widespread adoption of forward pricing could have serious negative implications for their financial sustainability, as any benefit from this pricing model is retained by OMCs and their dealer networks rather than being passed on to consumers.

The situation has been exacerbated by excess product imports and the failure to prioritize the upliftment of locally refined products. Despite repeated requests, the Oil and Gas Regulatory Authority (OGRA) has not enforced local upliftment under Rule 35(g) of the OGRA Rules 2016. OGRA’s recent response, stating that Rule 35(g) applies only to new license holders, has been rejected by the refineries, who argue that this interpretation contradicts the spirit of the regulations and the Pakistan Petroleum (Refining, Blending, and Marketing) Rules 1971, which prioritize local refinery products.

The refineries are now seeking Petroleum Minister Ali Pervaiz Malik's intervention to ensure that local products are prioritized when sufficient domestic supplies are available. They warned that continued displacement by imports would undermine the viability of refinery projects and deter future investment.

In an effort to stabilize the sector, the refineries have proposed introducing a weekly pricing mechanism to better align local prices with international market fluctuations, reduce pricing delays, and improve supply planning across the downstream sector.