ARIF RANA
ISLAMABAD (August 06 2007): The private sector oil marketing companies (OMCs) have declined to become part of government plan for building up storage capacity to increase the country's strategic oil reserves, saying that their low profit/margin does not allow them to go for any such big investment-demanding initiative.
Sources told Business Recorder on Sunday that the government had received the proposal of building up its strategic oil reserves from the World Bank to increase storage capacity from 22 days' to 40 days' reserve.
The idea was discussed at different levels and finally, at a meeting chaired by President General Pervez Musharraf, it was agreed in principle that since Pakistan needs to increase strategic oil reserves to some reasonable level, the World Bank's proposal was worth implementing.
The meeting tasked the Ministry of Petroleum and Natural Resources to push up Pakistan State Oil (PSO) and the multinational OMCs to invest in building up more oil storage facilities to increase Pakistan's strategic reserves. Being a public sector company, PSO had no other option but to say yes to any government call, and it undertook construction of oil storage house at Gwadar port, but none of the private sector OMCs, including Shell, Shavron and Attock Petroleum, came up with a positive stance.
On behalf of the private sector OMCs, the Oil Companies Advisory Committee (OCAC) informed Prime Minister Shaukat Aziz, in writing, that Pakistan's market demand and rate of return on investment were inadequate for huge immovable investment required for construction of new oil storages.
The World Bank has taken up the issue of oil storage capacity with the government time and again and has demanded to increase it to a reasonable level. Its officials believe that Pakistan needs to have 45 days' oil reserves. Pakistan's existing storage capacity is only 20 to 22 days' reserve.
OMCs are not comfortable with the government on oil pricing policy of not passing on the market rates to the end-consumers. They are of the view that the policy of capping the prices was resulting in creating financing problem for oil import operation. They claim that the government owes over Rs 23 billion as differential on oil buying and selling prices.
Copyright Business Recorder, 2007