PSO complains against Ogra suggesting oil imports for other OMCs

Oil Marketing Companies have defaulted to the commitment of diesel imports due to Russia-Ukraine War and the country is left with five days stocks only

Ibn-e-Ameer
Pakistan State Oil Company Limited (PSO) has complained to the petroleum division against the Oil and Gas Regulatory Authority (Ogra) for forcing it to import petroleum products for other oil marketing companies (OMCs), terming it anti-competitive.

In a letter sent to the Director-General of Oil Ministry of Energy (Petroleum Division), PSO General Manager Asad R. Faiz said that as per the OGRA Ordinance 2002, it is the primary responsibility of OGRA, inter alia, to foster competition and protect the public interest.

The suggestions put forth by OGRA are anti-competitive and appear to be contrary to the public interest as they would most likely create supply chain-related issues from which the general public would suffer.

Even otherwise, the suggestions by OGRA would create legal implications, the GM General Manager said.

Market situation highly volatile for oil imports by PSO

With regards to the suggestion regarding international tenders to be called by PSO for imports of products for other OMCs, as already mentioned in OGRA’s above-referred letter, a PSO official said that the market situation is highly volatile with regards to product availability and, like other OMCs, PSO is also going through the same strenuous situation.

However, PSO, being a responsible organization, is still meeting its obligations and arranging products irrespective of commercial considerations and additionally, bearing the huge circular debt.

Though PSO has already awarded two HSD cargoes in March 2022 in a timely and proactive manner through the tendering process (in addition to three cargoes planned with KPC), due to the international market situation, PSO did not receive any bids for its tenders opened for the delivery of HSD cargoes in the first fortnight of April 2022.

As a result, PSO has again floated an urgent tender for the same period.

Considering this situation, he said that PSO is neither in a position to take responsibility for imports of other OMCS as this may also become a single point of failure for the country’s supply chain nor does PSO have the mandate or financial capacity.

Moreover, due to increasing oil prices and huge PSOs receivable under circular debt (currently at Rs 464 billion), PSO is struggling to open LCs for its imports. There is no cushion at all to open LCs for other imports.

OMCs defaulting in imports due to Russia-Ukraine War

We would also like to specifically mention that, pre and post-Russian-Ukraine war, many OMCs are persistently defaulting on their import commitments, especially HSD, despite being discussed in various meetings (including PRMs from December 2021 to March 2022), he added.

Consequently, he added that there is a shortfall in imports of HSD of at least 205,000 MT by these OMCs from January to March 2022.

Higher growth in HSD sale pushes PSO’s market share up

The official said that PSO currently has only one fuel supply contract under a government-to-government (G2G) arrangement with Kuwait Petroleum Corporation (KPC) for supplies of Gasoil (HSD) and the contractual volumes with KPC are already fully utilized to cater to PSO’s requirement for market share, which even otherwise is only between the parties thereto, and the volumes under the same cannot be resold or offered to any other OMC.

PSO officials pointed out that PSO’s increased market share and additional unplanned consumption of HSD in the power sector in January and February 2022 had to procure two additional HSD cargoes through international tenders in March 2022.

For motor gasoline (MOGAS), PSO’s entire imports are through an international tendering system, and there is no G2G arrangement in place.

PSO has consistently highlighted this non-compliance in product review (PR) meetings and has also cautioned regarding the risk to the country’s supply chain in several PR and other meetings with OGRA.

Risk of Petroleum products’ Dry-out

However, no positive outcome/action on the part of OMCs has been witnessed to date, which is exposing the country to the risk of dry-out.

Recovery of other OMCs’ landed costs is an entirely commercial matter, and such ups and downs are part of doing business.

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There may be several occasions when smaller OMCs take opportunities by importing and selling according to the price regime and earn windfall profits.

A recent example is the windfall profits being earned by almost all OMCs other than PSO through huge custom duty waivers on Chinese FTA MOGAS cargoes for the last one and a half years, wherein only PSO was being singled out and not provided a level playing field. To date, no action has been taken on this matter either.

All OMCs are responsible for meeting their licensing obligations, while OGRA’s role is the enforcement of licensing conditions irrespective of commercial considerations for smaller OMCs.

Moreover, PSO has already procured two HSD cargoes through international tendering for March 2022 at C & F premiums of 5.64 and 8.45 USD/BBL as per the market situation to meet the surging demand without comparing it with KPC’s premiums.

OMCs responsibility to import petroleum products

Hence, other OMCs should also act responsibly to procure products as per their demand, commitment in the PR meetings, and licensing conditions rather than operating as opportunist traders. In the case of certain OMCs that are not able to fulfill their obligations, we suggest OGRA take necessary action.

From the contents of the letter, we fail to understand why certain OMCs are being given unnecessary protection despite their consistent defaults on their licensing obligations, PSO officials added.

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We agree, as pointed out by OGRA, that there is an urgent need to diversify international suppliers of imports. If PSO can import from all over the world while complying with PPRA rules, we fail to understand why other OMCs have not been able to secure a diversified supply chain despite having no such compulsions/restrictions, he said.

The inter-OMC sale, in our opinion, is against the public interest because it is anti-competitive, according to the official, who also stated that if PSO is forced to sell in the market, it will do so at full margin without jeopardizing its commercial interests.

He also said PSO has been under investigation for inter-OMC sales and was consequently declared illegal by concerned authorities.

PSO takes this opportunity once again to highlight that country’s products days’ cover is already at a critical level due to insufficient imports by several OMCs in the previous few months which calls for immediate enforcement of licensing requirements for stock replenishment on the faltering OMCs.

We would also like to highlight that had the suggestions by OGRA been made while taking PSO on board before submission, PSO would have been in a better position to explain its contractual obligations and find a better way forward, the official said.