ISLAMABAD: Joint Staff Headquarters (JSHQ), Ministry of Defence, has proposed that Strategic Petroleum Reserves (SPR) should be established underground to avoid damages in case of a terrorist attack and enemy aerial strikes.
JSHQ has sent these comments on Petroleum Division’s proposal to establish SPR storage facility for 30-day consumption, to be financed through imposition of Infrastructure Development Levy (IDL) at Rs 1/ litre on diesel and petrol.
Pakistan is an energy deficient country, importing 85% of its fuel requirements. In FY-21, the country imported a total volume of 17.4 million metric tons (MMT) of fuel. It included 8.2 MMT of crude oil, 3.2 MMT of diesel and 6 MMT of petrol. Presently, Oil Marketing Companies (OMCs) are obligated to maintain stocks equivalent to their 20 days’ demand on commercial requirement basis. Diesel and petrol are the major products, which contribute around 80% of the total requirement in the country.
The Concept Paper on SPR subject says that maintaining 30 days consumption cover for diesel and petrol under SPR arrangements would require creating storage for around 2 million tons with a project cost of Rs 354 billion.
The country’s existing storage capacity of petroleum products and crude oil available with OMCs, refineries and pipeline operators is around 2.5 and 0.9 MMT, respectively.
Petroleum Division has submitted the following proposal: (i) OGRA may be directed to undertake a comprehensive study through an independent group of experts for devising a detailed framework for setting up Strategic Petroleum Reserve (SPR) in a 6-month period, suggesting possible ways and means to achieve the target, as per the draft Terms of Reference (ToRs);(ii) a phased program for development of SPR, in light of the proposed study may be finalized with the prior approval of the CCoE/ Federal Cabinet. In the first phase, 10 days’ emergency reserve storages may be considered, which can then be gradually enhanced to 30 days;(iii) an Infrastructure Development Levy (IDL) of Rs 1/liter may be considered on diesel and petrol prices for generating revenue stream for this project. It would result in Rs 20-22 billion annual revenue based on current sales volumes;(iii) Finance Division/ FBR may be advised to create a dedicated/ auditable head of account, to be controlled by OGRA, for depositing and utilizing the proposed IDL funds, in consultation with the Petroleum Division, to finance the establishment and maintenance of SPR.
Usefulness of developing/ maintaining SPR in the form of crude oil may be re-examined vis-à-vis having SPR in the form of refined products, as well as, crude oil.
Air Headquarters (AHQ), in its comments has said that proposed SPR may provide 30 per cent crude reserves for production of aviation fuel (JP-8) to meet PAF requirement.
Joint Staff Headquarters (JSHQ) said that the SPR may be made underground in order to avoid damage in case of a terrorist attack and enemy aerial strikes. SPR with a quantity of 0.7 million tons should be developed at Gwadar along with an oil jetty at Gwadar Port.
JSHQ further stated that it will help the country strategically as it will remove congestion at Karachi and improve efficacy at Gwadar Port. SPR at Gwadar should be linked with Karachi and Mehmoodkot through a pipeline, which will facilitate transportation of imported oil from Gwadar to Karachi and rest of the Pakistan.
Oil and Gas Regulatory Authority (OGRA), in its comments said while determining the size of SPR tank farms at the designated location, the throughput of the refinery nearest to the SPR must be taken into account. Similarly, refined product tank farm size should be determined, keeping in mind the demand of the area.
OGRA further stated that pipeline connectivity with refineries and oil marketing company depots has to be provided while designing the SPR.
It maintained that worldwide, the SPR is “owned/ managed” by the government exclusively or in collaboration with the private sector. The concept paper also supports ownership by the Government owned entities. The GoP should assign the task to PSO or NLC to which OGRA shall issue licence as applicable Law/Rules for implementation of the GoP policy.
OGRA argued that clarity needs to be brought forth as to whether IDL will be utilized for construction purpose only or both for construction of storage and maintenance of stocks. In case both expenses are to be borne through IDL, then duration and rate of such Cess after completion of construction may be brought to the knowledge of the CCoE, for taking an informed decision. Further, the proposed imposition of IDL will result in an annual collection of Rs 20-22 billion; therefore, the financing source of the balance amount needs to be identified.
The oil sector regulator further stated that controlling IDL funds for the proposed project may also rest with Petroleum Division to save time and avoid delay. OGRA shall ensure implementation of the policy guidelines issued by the Federal Government through licence conditions.
General Headquarters (GHQ) Ministry of Defence, in its comments has said that existing mechanism for maintenance of Army’s Supply Fuel Reserve (SFR) by OMCs should continue to avail of their storage facilities in vicinity of areas where fuel is required by Army. In addition, SPR should be considered as an additional cushion to meet Army’s requirement.
MoD further proposed that linking of planned storages with existing national pipeline infrastructure may be considered. Aspects of protection against an interdiction/ sabotage be considered during construction, adding that bulk of storages have been concentrated around Karachi; therefore, diversification of storage along the coastal belt and up-country may be considered.
Copyright Business Recorder, 2022
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