The oil import bill for the quarter ended September will be fat one as the timing of increase in petroleum demand ill-coincided with that of decline in refineries production. While the actual numbers for September are yet to be published - total imported oil would not be less than 4.8 million tons, up 5 percent on year-on-year basis.
This is largely due to under-utilisation of refineries production capacity which cost a sizable amount to the exchequer - an amount that could have been saved due to falling oil prices in comparison to last year. Production numbers reveal that refineries total output for 1QFY10 declined by a substantial 11 percent leading the refineries operating at 60 percent efficiency level. The inter-company circular debt was the chief reason behind under-utilisation as it inflated the working capital financing - thus eroding sector profitability.
The TFC issued in March to resolve circular debt did not help eliminate the liquidity crunch of refineries a great deal as they only received Rs 21 billion of the Rs 85 billion. Barring PARCO which took the lions share, all other companies had to share the pie of remaining Rs 2 billion, which was never going to be enough to answer their woes.
A closer look at few balance sheets reveals that not all were on the receiving end of circular debt and were rather net debtors. Rapidly declining refinery margins owing to a massive slip in international oil prices coupled with inventory losses and reduction in deemed duty by 250 basis points made the call to curtail productions a rather easy one. Gross refinery margins nose-dived four times to $0.59/bbl - hitting the sector profitability to an extent that caused a reduction in their production.
On the flipside, petroleum consumption increased by 12 percent mainly due to massive increase in petrol and furnace oil demand, compelling to import almost 60 percent of countrys demand. Black oil product demand grew because of new IPPs and better supply by PSO ensuring 32000 tons/day to the power plants. Similarly, Petrol demand was on the rise because of reduced prices and more importantly the ever reducing gap with CNG prices.
Going forward, international oil prices are expected to move up slowly but surely, which should help build inventory gains and earn better margins - ensuring optimal capacity utilisation. Petroleum demand is likely to slide a bit as the winter season approaches which would call for lower furnace oil demand for power plants.
However, petrol demand is likely to beat all previous records as CNG stations are expected to be either deprived of gas supply or have their tariffs increased - and in both cases petrol consumption would rise. Another quarter of sky-rocketing import bill awaits us.
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REFINERY PRODUCTION PETROLEUM CONSUMPTION
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tons (000) 1QFY10 1QFY09 % chg tons (000) 1QFY10 1QFY09 % chg
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MS 314 319 -2% MS 470 341 38%
KERO 35 51 -31% KERO 33 48 -31%
JP-1 156 151 3% JP-1 159 149 7%
HSD 820 893 -8% HSD 1757 1889 -7%
FO 638 803 -21% FO 2421 1922 26%
Total 2073 2340 -11% Total 5039 4489 12%
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Source: OCAC.
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