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EDITORIAL: However in tune the government’s vision about the national refinery policy is with international trends and the future of the industry, the fact remains that the furnace oil (FO) glut has been caused by the miscalculation of the energy ministry. And although it is already too late to completely solve the problem, any further delay in meeting this emergency will cripple existing refineries before they are able to adjust to the inevitable reduction and phasing out of furnace oil from power production.

And their sudden capitulation will surely reverberate right through the already very fragile supply chain. Things wouldn’t have been nearly as bad if PSO (Pakistan State Oil) hadn’t been ordered to import 120,000 tons of FO when local refineries were already overflowing, of course, so the responsibility of redeeming the situation falls squarely on the energy ministry.

Also, while importing FO when local reserves are healthy definitely goes against existing law, there are still far too many conflicting reports about why exactly IPPs (Independent Power Producers) are not lifting promised stocks from local refineries — which they are mandated to maintain to meet emergencies.

Have they been paid dues owed to them, as agreed with the government, or not? And is this matter part of the problem that has suddenly snowballed to threaten the very survival of refineries? Now nobody’s taking their existing stock, and they’re unable to export it without substantial loss, which means first they’ll scale back production and, if there’s still no solution, shut down altogether.

Meantime, the tons imported aren’t being put to much good either as they sit aboard vessels berthed at the port with the government forced to pay something to the tune of $1,500-2,500 demurrage daily.

The Oil Companies Advisory Council (OCAC) is now betting on the energy ministry agreeing to generate 1500MW of electricity from HSFO (High Sulphur Furnace Oil) for five years as a “win-win solution to rescue local refiners”.

The crisis in the refining industry is also affecting production of kerosene, petrol, diesel and lube-based oil; and supply to important sectors like defence will come under pressure soon enough. Therefore, all refineries are asking for, and indeed need, is enough time to toggle their generation mix in light of new realities. This transition must be made with the least possible harm to production and supply chains.

The government is right to an extent that refineries ought to have seen what was happening over the last few years and adjusted to protect their businesses. But that doesn’t do any good right now; especially since the crisis was aggravated by its own unilateral actions.

Clearly, it hasn’t yet come round to the realisation that the most obvious solution isn’t always the optimal one. The energy ministry must now put almost everything else aside and do something about the excess furnace oil, as well as the refining industry that is haemorrhaging money because of it.

If it can’t be used, it must be exported. But local refiners are going to need export subsidy or a couple of them, at least, will still go belly up. The ministry must, in any case, also do whatever needs to be done to get IPPs to honour their commitment and take FO from refineries.

The government must also stop taking decisions about issues that involve a number of sectors and industries without taking important stakeholders on board. The way CEOs and MDs of refineries were invited to Islamabad by the energy ministry for consultation about the refinery policy last month, then told just before the meeting that it had been cancelled, and then told that their input would not be required at all, was in very bad taste. So, when working out what to do, and in which order to do it, the government must also give an ear to the refineries and all others down the supply chain.

Copyright Business Recorder, 2022


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