Economic Coordination Committee (ECC) of the Cabinet has reportedly granted partial independence to Pakistan State Oil (PSO) - the national oil supplier - from using Pakistan National Shipping Corporation (PNSC) as sole carrier of all petroleum products, well informed sources in Petroleum Ministry told Business Recorder. "ECC has decided that petrol and Low Sulphur Furnace Oil (LSFO) will be imported on open tenders whereas High Sulphur furnace Oil (HSFO) would be imported through PNSC," the sources added.
Insiders in PNSC argue that the ECC's decision has deprived PNSC of revenue of billions of rupees adding that the price of PNSC share has dropped from Rs 170 per share to Rs 100 per share. At a recent meeting presided over by Prime Minister Nawaz, this issue came under discussion wherein Minister Petroleum, Shahid Khaqan Abbasi and top boss of PSO sought permission to import petroleum products on open tender and Prime Minister allowed it for three months because PNSC's case was not pleaded, he added.
However, the ECC headed by the Finance Minister, Senator Ishaq Dar took a different decision against the national carrier. According to official documents, the ECC in its meeting held on April 23, 2015 had constituted a committee under the chairmanship of Secretary Finance to deliberate upon the issues and bring up proposals for the ECC in its next meeting. The committee held consultations with relevant stakeholders and proposed that: (i) Secretaries of Ministries of Petroleum and Ports and Shipping would hold monthly meetings with their concerned entities to resolve the operational issues and streamline working relationship; (ii) PNSC will provide vessels to PSO as per their demand within shortest possible timeframe; and (iii) PSSC will urgently provide No Objection Certificate (NOC) to PSO for making their own arrangement, in case PNSC is unable to provide a vessel to the PSO.
Petroleum Ministry stated that imports through PNSC had been a longstanding issue that needed to be resolved to avoid any gap in the demand and supply of petroleum products. The Ministry added that the PNSC had only four vessels in their own carrier and it (PNSC) hires vessels from international market causing delays and operational issues between PSO and PNSC.
Moreover, Free On Board (FOB) arrangements entail exposure of the buyer to risk/title of the vessels as well as quality related matters. According to the Petroleum Ministry, PSO did not support continuation of Contract of Affreightment (CoA) with PNSC and imports on FOB basis, and they (the Ministry) strongly supported the viewpoint of PSO and proposed to allow PSO to proceed with import arrangements on Cost & and Freight (C&F) through an open bidding process in order to ensure consistent and smooth supplies of petroleum products.
After a detailed discussion an agreement was reached between the Ministries of Petroleum and Ports and Shipping, according to which PSO has been allowed to import petrol and Light Sulphur Furnace Oil (LSFO) on the basis of C&F and the High Sulphur Furnace Oil (HFSO), will continue to be imported on FoB basis.
Insiders in PNSC maintain that PSO had signed CoA with PNSC on an understanding that the agreement will be revised in January each year according to the current rate. Shipping industry is well documented and rate of each service including availability of vessels is documented. In response to a query an insider claimed that PSO has inflicted more than $3 million financial loss to the national exchequer in the last two tenders.
He claimed, on June 5-7, 2015 suppliers quoted a freight rate of $38. 15 per ton whereas PNSC's June 5 rate was $13.50 per ton, indicating a difference of $24.65 per ton or 283 per cent lower than the rate offered by a private supplier. Another supplier who won the tender of June 7 - 9, 2015 quoted a freight rate of $50.01 per ton against the rate of $13.50 per ton offered by PNSC, showing a difference of $36.5 per ton or 370 per cent higher. The government would have saved $3.058 million from last two tenders had the PNSC been allowed to import petroleum products.
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