Pakistan State Oil (PSO) is all set to scrap Contract of Affreightment (CoA) with Pakistan National Shipping Company (PNSC) due to its unsatisfactory and inadequate fleet, well informed sources told Business Recorder.
The ECC, in its meeting on November 22, 2012 had recommended to strengthen the PNSC and to make it a vibrant national carrier, and recommended to: (i) reinforce the recommendations of the Kazi committee with full force; (ii) all contracts and agreements should be FOB with PNSC nominated as carrier; (iii) PNSC should act as Shipping Agency for all Ministries, autonomous and semiautonomous departments of the Government; and (iv) organizations like PSO, TCP, PSM should have long term COA on a market based formula as is being done successfully with the refineries.
Accordingly, a CoA was signed between PSO and PNSC during 2012 followed by an Addendum of January 8, 2013 for transportation of Furnace Oil (FO) and Premier Motor Gasoline (PMG) on FOB basis. Prior to the CoA, the imports were arranged by PSO on C&F basis through floating of competitive international tenders in the spot market.
However, PSO's experience with PNSC proved unsatisfactory due to inadequate fleet and fewer self-owned vessels. Consequently, PNSC began to charter vessels from other shipping companies for transportation of POL products, which led to frequent disturbances and operational issues in PSO's supply chain owing to delayed reporting of PNSC vessels at loading ports and subsequent delayed arrival at the discharge port, ie, Karachi.
The sources said a major reason for the PMG crisis during January, 2015 was late arrival of two PNSC vessels despite timely establishment of Letters of Credit by PSO. In the wake of that crisis, the then Ministry of Petroleum & Natural Resources proposed, through a summary for the ECC of May 29, 2015, to do away with PSO's FOB supply arrangements through PNSC and to allow PSO to import on C&F basis through an open bidding process.
ECC considered the summary in its meeting held on June 6, 2015 and directed that PSO may import PMG and Low Sulphur Furnace Oil (LSFO) on C&F basis, while import of High Sulphur Furnace Oil (HSFO) may continue to be carried out on FOB basis through PNSC.
Recently, a paradigm shift occurred, when Cabinet Committee on Energy (CCoE) in its decision of April 28, 2017 directed the then Ministries of Water & Power and Petroleum & Natural Resources to work out a balanced conversion plan of power generation from FO/HSD to RLNG and coal. In pursuance of the decision of the CCoE, import of FO has been discontinued effective January, 2015. Consequently, CoA between PSO and PNSC has become ineffective, as there would not be any meaningful engagement with PNSC's owned/hired vessels, in future. In accordance with clause-1 of the CoA, PSO is bound to transport approximately 3 million tons/annum of furnace oil, which is not possible under the present circumstances. Therefore, PSO does not see any rationale for continuation of CoA with PNSC and workability of imports on FOB basis.