Oil inquiry: Heads must roll

Proceed only if you have a thing for horror content.

There is no other way to summarize the rather shocking findings of the “Report of the Inquiry Commission on Shortage of Petroleum Products in Pakistan.” Some of the harrowing details pointed out by the commission should send shivers down the collective spines of those responsible. But the fact that it is only an inquiry report, will offer collective comforts to those named. It still has to withstand the test of the court of law – and that could take ages for the culprits to face the music.

Let us leave the cause and effect to be debated for some other time. Let us not even get into the debate whether the oil import ban was in anyway responsible for the shortage in June. Let us, for the moment, ignore the recommendations of the Commission (some of which are rather weird). But let us not ignore the harrowing details of what the report lays out bare in terms of facts.

The rules of the game are such that they point towards connivance amongst most stakeholders, from the policymakers to the regulators and from the enforcers to the sellers. That an oil cartel exists in Pakistan is hardly news. It is the modus operandi that is now out in the open and needs to be dealt with. Here are just a few examples of the horror show that is the management of Pakistan’s largest industrial sector.

The show is primarily run by DG Oil, who has the most responsibilities on his plate. The gentleman is a learned and qualified professional too. But he would be doing rather well, if he was dealing with animal health, being a qualified veterinary doctor. The fault does not lie with the doctor, it lies squarely with the authorities, as he continues to serve against the rules.

Thirty-four OMCs are active in Pakistan. Twenty-five of them were granted marketing license in a six-month span. The rest of South Asia has 20 OMCs combined. But this alone does not say anything. The licenses were granted in the name of fostering competition and “encourage storage capacity”. Now consider this. Ninety percent, yes Nine Zero 90, OMCs maintained no requisite stocks for six months starting January. When the prices increased, some of the OMCs saw their stocks go up to 100 days from zero in less than a week. The ministry paid no heed.

There are more than 2100 retail outlets in Pakistan that operate unhindered without maintaining the required storage capacity. Ogra fined a “hefty” sum of Rs100,000. Move on. Almost all leading OMCs maintain joint storage operations, which is prohibited under the law. It goes unpunished. Virtually no oil tankers running on the roads have the requisite quality license. No problem.

Multiple OMCs continue to operate retail outlets in excess of what the rules allowed. In one instance, an OMC has 600 outlets, where it is allowed no more than 70. Not that the regulator does not do its duty. It duly imposes a colossal fine of Rs100,000 on each excess outlet. Job done.

Ground checks confirmed the reported data is incorrect. The OMCs actual supply to retail outlets was 44 percent lower than reported, as the Commission went out on ground. OMCs with no retail outlets have imported oil. Only to sell it to other OMCs. Not allowed. But has gone on unhindered. Who allows it? A vessel carrying 80 million liters of gasoline was not offloaded till the prices were increased out of turn on June 26. All OMCs barring PSO and to some extent shell, resorted to shameless hoarding and increased supply at the blink of an eye, upon price increase.

Against all rules, OMCs continue to have joint interests in each other. There are instances of private unapproved storages, which are then used for hoarding in times like those in June 2020. Rs7 billion were pocketed by OMCs as a result of hoarding. The fines were imposed. Happily, paid. Who would not pay peanuts for gold?

Then there are OMCs indulged in adulteration of fuel. They are found guilty of importing banned Iranian fuel, which goes unchecked by Customs. The OMC takes it to the court. The matter remains pending. Back of the envelope calculations put the tax loss of smuggled petroleum at Rs240 billion per annum. This happens with all border patrolling agencies involved. Goes smooth.

While, there may be lessons on a broader scale for the policymakers, in terms of how to deal with Ogra. How much more to deregulate the market. What is a good pricing mechanism? How much control can the market take? That can all wait. First and foremost, should be an action on all those who have engaged in the abovementioned never-ending list of wrongdoings. This must not go unpunished. Heads must roll. Even if it takes the big ones.