Thanks to the global decline in oil prices during 1HFY10 in comparison to the same period a year ago, Pakistans oil import bill shows a significant drop of 31 percent in dollar terms. But hold on - the world oil prices which stayed above $100/bbl for the better part of 1HFY09, in the meanwhile have crumbled like nine pins. In essence, 11 percent hike in the import volume of petroleum products volume that reduced the impact of the significant dip in oil prices.
What triggered such high oil imports was unfortunately not a boom in industrial production as it largely remained flat during the period. It was rather a few inefficiencies that were broadly responsible for higher petroleum imports.
First and foremost, refineries recorded a disappointing first half of the fiscal year as their production dwindled by 8 percent year-on-year. During the period, refineries operated at an efficiency level of a mere 61 percent - a significant drop from the previous year levels of 73 percent. The reasons for operating at such dismal efficiency levels are twofold.
Pakistan stood no exception to the recent global phenomenon of substantial reduction in global refining margins. Overall spreads on products went down by more than 100 percent and ended up on the red zone.
With the exception of ATRL which enjoys the advantage of a better product mix, all other refineries had to settle with negative margins in excess of $1.5/bbl. Then there was the change in the pricing mechanism, which made matters worse and kept the refineries at bay from operating at optimal efficiency level.
To add to the list of inefficiencies, there was one on the part of the government as well, as it failed to manage the circular debt efficiently that hindered refineries capability to procure the required crude oil on timely basis. Refineries receivables have now surged to a mammoth Rs60 billion, which is not only limiting their production but is also adding to the circular debt as their payables have exceeded the amount they are due to receive.
On the consumption side, though, the story is different, as total petroleum sales picked up by 14 percent, albeit, this increase also seems to be a consequence of system inefficiencies rather than organic growth.
Growth in petroleum consumption was led by increased demand of gasoline and furnace oil. MS demand shot up as the gas shortage in winter peaked, causing the motorists to switch from CNG to petrol, whereas the ever reducing gap between CNG and petrol prices also played its part in the substitution effect.
Whereas, the furnace oil consumption went up as the power crisis deepened even in winters coupled with gas shortage, forcing IPPs to make a switch to furnace oil based electricity generation. Moreover, new IPPs and RPPs also entered the scene, a large number of which were FO based - thus causing the rise in FO demand.
There months as global oil prices are predicted to be stay at the current levels at least - if not increase. The ugly presence of circular debt shows no signs of fading away in the near future which would keep the refineries production in check. And considering that there are more power plants in the offing shortly - there won be any respite in oil imports.
================================================================
Refinery production Petroleum consumption
================================================================
000 tons 1QFY10 1QFY09 % chg 000 tons 1HFY10 1HFY09 % chg
================================================================
JP 491 491 0% JP 746 542 38%
MS 651 662 -2% MS 927 690 34%
HSD 1,607 1,681 -4% HSD 3,710 3,674 1%
FO 1,279 1,495 -14% FO 4,419 3,610 22%
Others 141 189 -25% Others 267 325 -18%
Total 4,169 4,518 -8% Total 9,738 8,512 14%
================================================================
Source: OCAC Source: OCAC