Traditionally, due to the high demand of two products, ie. High Speed Diesel (HSD) and Furnace Oil (FO), there has been a supply deficit in the country. Due to this, these products have to be imported, majority of which is done through the Middle Eastern countries because of cost effectiveness.
The majority of HSD demand comes from the transport sector and the government provides incentives for HSD consumption in comparison to motor gasoline. The OMCs import around four million metric tons of the product whereby PSO has the lion's share of imports accounting for more than 65%.
PSO has maintained a 30-year mutually-beneficial business relationship with KPC for the purchase of HSD and FO. This is through a term contract, which assures both parties of continued product supply and protects PSO from frequent price fluctuations in the international HSD market.
This term contract previously existed between the KPC and the Government of Pakistan (GoP). Upon deregulation of the HSD imports from January 2001, PSO entered into an agreement with the KPC for supply of HSD.
In 1974, the Government of Kuwait began acquiring the major oil sector companies of the country, including Kuwait Oil Company (KOC) and Kuwait National Petroleum Company (KNPC) and Kuwait Oil Tanker Company (KOTC).
KPC was established in 1980 to bring together all the major elements of the Kuwait oil industry under one comprehensive umbrella. KPC combines the global strength of operational presence on six continents and is universally recognised as one of the top 10 oil energy corporations.
KPC is a major supplier of HSD to many countries in this region, including Indonesia, Bangladesh and formerly Vietnam. KPC holds a 10-20 percent share of HSD exports in the Asian market whereas Pakistan imports 75% of its deficit HSD demand from KPC. In addition to exporting High Sulphur HSD to this region, KPC also exports Low Sulphur HSD to the European region.
The price premium agreed between PSO and KPC has consistently provided PSO with a competitive edge, which includes the Oil Marketing Companies and the local refineries. Thus, by importing HSD at a very competitive rate, PSO is servicing the nation by reducing cost of import as well as end price to customers.
PSO and KPC meet bi-annually to discuss the price premium to be applicable for the coming half of the year; this protects PSO from the volatility of HSD prices.
The relationship that has developed between PSO and KPC has provided both companies of assured business and on-time payments to ensure smooth operational coordination. The relationship has stood firm even during global events that threatened supply routes, including the recent Israel/Lebanon conflict and the Iraq war before that.
PSO regards the KPC relationship to be one of its greatest assets in the supply chain and believes that with time, the relationship will only get stronger and provide more business benefits to both companies. With the announcement of KPC's interest in setting up a refinery in Pakistan, the possibilities of enhancing this business relationship to higher levels are endless.
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