Pakistan Braces for Fuel Shortage in Feb?

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Last weekend, Federal Finance Minister Ishaq Dar announced a sudden hike of Rs. 35/liter in the price of petrol and diesel. This petrol bomb was an expected surprise, especially after the dollar went from Rs. 230 to Rs. 255 in a single day. In his press brief, Dar said that to prevent temporary hoarding and speculation about petrol shortages, the Oil & Gas Regulatory Authority (OGRA) asked the government and Prime Minister Shehbaz Sharif to implement the new rates immediately.

It was a good move by the government to stop hoarding; however, there are still news circulating that prices will go further up, and the country will face a fuel shortage in the coming days. According to a report by the international news agency Reuters, Pakistan could face a crunch in fuel supplies in February as banks have stopped financing and facilitating payments for imports due to depleting foreign exchange reserves. 

The report further highlighted that the State Bank of Pakistan (SBP) has cited “severe liquidity issues” due to delays in LCs. Meanwhile, as per PSO officials, a gasoline cargo due on January 13 was cancelled due to the non-opening of LCs. 

Oil Companies Letter to Govt 

Last week, the Oil Company Advisory Council (OCAC) wrote a letter to the finance secretary on behalf of Oil Marketing Companies (OMCs) and refineries. It drew the ministry’s attention towards the issue begot in the face of closed LCs.

The council stated, “If LCs are not established on a timely basis, critical imports of petroleum products will be impacted, which may lead to a fuel shortage in the country.” The council further informed if this happens, the fuel supply would be compromised, and it may take six to eight weeks to normalize the situation.

The OCAC Said, “These imports require the opening of LCs; however, the industry is facing severe challenges of opening and confirmation of the LCs, which has caused a delay in multiple cargoes and a few cancellations as well.”

To meet the energy deficit, Pakistan needs to import 430,000 metric tonnes (MTs) of mogas, 200,000 MTs of High-Speed Diesel (HSD), and 650,000 MTs of crude oil every month, which costs around $1.3 billion.

Statement by Petrol Pump Owners 

To understand the ground reality better, PakWheels.com contacted an official of the petrol pump association. Talking about the potential shortage, he said it is possible for two main reasons. “One is expected price hike in coming days, while second and the primary one is hoarding by Oil Marketing Companies (OMCs),” the official said. He claimed that due to the expectation of price increase, the OMCs are not supplying enough fuel to the pumps; resultantly, not all pumps can be functional, which leads to closure of the pump and non-availability of fuel for the people. 

“The government needs to take action against the OMCs and search their storage depots,” the official said. He thinks that the masses will face the music, or in easy words, fuel shortage, in the next couple of weeks unless the government takes a serious step.

OMC’s Point of View 

After talking to the petrol pumps association official, PakWheels.com contacted an official of one of the biggest OMCs in Pakistan. Discussing the fuel shortage and blame for hoarding by the oil companies, he said that these are fake reports and it is not a hoarding rather a technical issue, disrupting the supply chain. “Both diesel and petrol are supplied from Karachi port to the refinery in Mehmoodabad through the “White Oil Pipeline System” and secondly through tankers; however, the major supply source is the pipeline.

Due to the uncertain and slow economy in Pakistan, the demand for diesel has fallen down, which has caused the filling of diesel storage spaces, including the pipeline,” the official said, adding that as the pipeline is full now, the petrol couldn’t be supplied through it. “The companies are supplying the petrol through tankers and lorries, but it takes around five days to reach their destinations. 

“Due to this issue, the possibility of shortage has been looming since the start of this month; however, he claimed there is no truth in reports of hoarding by the OMCs.”. He pointed out that the major issue for the OMCs is the non-issuance of LCs, especially for PSO, which holds a 50% market share. “It is hard for other companies to fill that void, and this is causing a kind of panic in the market and among the masses. 

The official believes there could be another price hike in the coming days, and the shortage issue can be resolved if the LCs are open and the economy starts to stabilize. 

Conclusion 

The situation is grave as there would be another price increase, which can be in the next few days or on February 15, 2023. Secondly, some experts believe that there would be no fuel shortage because it is more of a technical issue; however, media reports and a few analysts believe that the country is on the verge of a fuel shortage, and the reason is the non-issuance of LCs by the SBP. 

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