ISLAMABAD: The government has decided not to allow any Oil Marketing Company (OMC) to import petrol below Euro-V after August 1, 2020, official sources told Business Recorder.
The decision was taken by the Cabinet Committee on Energy (CCoE) on June 4, 2020 which was ratified by the federal cabinet on June 23, 2020, minutes of which have landed in the Petroleum Division on Monday which will issue necessary instructions to the concerned sectors through OGRA.
Official documents available with Business Recorder reveal that the Petroleum Division informed the meeting that the marketing of petroleum products in Pakistan is being liberalized in a gradual manner for the last 20 years. In the first phase, import and pricing of Furnace Oil (FO) was fully deregulated. Import of remaining products like Diesel and Petrol were also partially deregulated and Oil Marketing Companies (OMCs) were allowed to procure from the international market on cost competition basis, as per their commercial requirements, whereas pricing of these products is being monitored by OGRA.
In 2016, petrol imports were shifted from 87 RON (Research Octane Number) to 92 RON (Euro-II) standards under regulated regime, while import and pricing of HOBC (High Octane Blending Component) and PMG (Premier Motor Gasoline) (95/97 RON) were also fully deregulated. All imports of diesel oil conform to Euro-II standards since January 2017.
Petroleum Division further said that Pakistan needs to improve both quality and standards of the petroleum products being imported by the OMCs. Keeping in view the lower prices in the international market, it is the right time for switching over from current Euro-II diesel and petrol to Euro-V standards, which are marketed in most of the countries in the world.
These products have a reduced environmental impact due to lesser sulfur content as well as lower emissions. In Pakistan, the annual consumption of diesel is about 7.4 million tons. Currently, about 35% of country's diesel requirement (2.6 million tons) is catered through imports, while 65% (4.7 million tons) is met through local refinery production. In order to ascertain the financial impact of shifting from Euro-II to Euro-V diesel, a comparative analysis has been carried out based on Platt's published FOB, prices of the two products for the Arab Gulf market, actual premium charged by KPC for Euro-II diesel and the month end inter-bank dollar rate for FY2018 and FY2019.
This analysis shows that Euro-V diesel is expected to be expensive by approximately Rs1.0 per liter, as compared to Euro-II diesel imports. The annual consumption of petrol in the country is about 7.6 million tons. Currently, about 70% of Pakistan's petrol requirement (5.3 million tons) is catered through imports, while 30% (2.3 million tons) is met through local refinery production. Petrol prices are not published in terms of sulfur content in the products; rather they are published in accordance with the RON factor. Therefore, no authentic financial impact of shifting from Euro-II to Euro-V petrol is available.
However, PSO's petrol imports already have an average sulfur content of around 100-200 PPM (Parts Per Million) and PSO expects a minimal price difference in case of switch over to Euro-V petrol. Actual import cost as well as the price differential of both Euro-V diesel/petrol may, however, vary from time to time in accordance with the price trends in the international market.
The current impediments in the introduction of Euro-V diesel/petrol imports are three fold as follows: (i) Hydrocarbon Development Institute of Pakistan (HDIP), the quality testing authority, does not have equipment/facilities to test Euro-V diesel/petrol. HDIP will be able to commence testing operations in June 2020.
However, PSO is also in the process of procuring testing equipment(s) by August 2020;(ii) PSO has a long-term agreement for supply of diesel oil with Kuwait Petroleum Corporation (KPC), which is pursuing its Clean Fuel Project (CFP) and has confirmed availability of Euro-V diesel by January 2021. Accordingly, KPC will be discontinuing Euro-II and would be only supplying Euro-V diesel from 2021 onwards and;(iii) it is not possible for PSO to immediately start 100% import of Euro IV or Euro V HSD from sources other than KPC due to minimum annual contractual commitment volumes with KPC. Opting for non-KPC supplies may be costly having serious legal, commercial and compliance implications for PSO and GOP as well as reputation risk in the international market.
Petroleum Division recommended partial and full switching over from existing Euro-II diesel and petrol imports to Euro-V standards as per the following schedule: (i) The partial imports of petrol may be initiated from the 1st week of June, 2020 and subsequently all imports shall conform to Euro-V specifications with effect from 3rd quarter 2020; Import of petrol below Euro-V specifications may not be allowed to any OMC beyond that deadline;(ii) all imports of diesel may conform to Euro-V specifications with effect from the deadline received from Kuwait Petroleum Corporation i.e. January, 2021.
Import of diesel below Euro-V specifications may not be allowed to any OMC beyond that deadline. PSO may, however, import Euro-V diesel from first week of June, 2020 as and when available from KPC, which has indicated that it will start trial production of Euro-V from June, 2020;(iii) current mechanism for marketing of diesel and petrol with regard to pricing and IFEM component shall prevail. OGRA and OCAC shall take further necessary action accordingly;(iv) prevailing pricing formula may continue i.e. average of 5 days Mean of Platts Arabian Gulf (MOPAG) for Euro-V diesel and petrol centered on B/L date plus premium/freight and incidental charges on actual basis. Pricing of imported Euro-V diesel and petrol would be on the basis of PSO's actual landed import price;(v) pricing benchmark/mechanism for local refineries for producing 'diesel and petrol may be based on PSO's actual landed import price of Euro-V diesel and petrol, as per current practice (already contract has this loss process with a sulfur content penalty factor for diesel/RON a differential penalty for petrol, as is being presently followed. OGRA will finalize the price calculation in this regard, in consultation with oil refineries and PSO, so that any undue advantage to refineries producing below Euro-V standards is avoided;(vi) co-mingling/intermixing of imported and locally produced grade by refineries and OMCs may be allowed, as it will improve the overall specification of the product at distribution levels need a timeline to end.
Alternatively, cleaner products could be used more upcountry to reduce the air pollution in the plains where it is more pronounced.
During the ensuing discussion, the CCoE held an exhaustive discussion on the proposed switching over from current Euro-II diesel and petrol to Euro-V standards and observed that it is need of time to adopt Euro-V fuels in the country as many countries have already shifted to Euro-V due to its lesser sulfur content and lower emission, which would ultimately facilitate in reducing negative environmental impact.
CCoE decided that the process of switching of petrol imports to Euro-V specifications shall be initiated forthwith. Imports of petrol below Euro-V specifications shall not be allowed to any OMC beyond August 1, 2020.
The CCoE further decided that all imports of diesel shall conform to Euro-V specifications with effect from January 2021. In the interim period, efforts shall be made to import Euro-V, however in case of its non-availability under
the long-term agreement with Kuwait Petroleum Corporation, diesel of Euro-IV specification shall be imported.
Copyright Business Recorder, 2020
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