Oil import thru bonded storage facilities: PD asked to consult stakeholders on guidelines

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has directed Petroleum Division (PD) to consult stakeholders on policy guidelines for import of crude oil and petroleum products on foreign supplier’s account through Customs bonded storage facilities as big petroleum companies are opposing the proposal for fear of loss of business, well informed sources told Business Recorder.

Pakistan is an import dependent country with regard to crude oil and petroleum product requirements. Consequently, Pakistan imports about 9-10 million tons each of crude oil and petroleum products (HSD/MS/ FO) every year. Bulk of these imports is procured from the Arab Gulf Market under long-term arrangements, as well as, spot purchases.

FBR expresses reservations at PD’s policy guideline

Downstream oil marketing/ distribution sector in Pakistan has been deregulated since last two decades. Consequently, the number of Oil Marketing Companies (0MCs) and oil importers operating in the country has multiplied in last 20 years. Local refinery supplies being constant and oil demand consistently increasing, the import dependence has also multiplied.

Smaller OMCs with comparatively lower import requirement are facing dire issues in procurement from international market, and importing larger size vessels/ parcels has become too difficult for them. Therefore, increasing number of smaller import vessels is straining their supply/ logistic chain and resulting in congestion at ports and demurrage incidence.

Moreover, issues of LC opening/ LC confirmation by international banks and forex liquidity are also impacting on procurement planning.

Petroleum Division lately received various proposals from local and foreign companies to make necessary policy/ regulatory arrangements for allowing import on foreign supplier’s account whereby: (i) foreign supplier will maintain inventory of crude oil and petroleum products in bulk form, in their own Customs Public Bonded Warehouses located around the Pakistani ports (without foreign exchange remittances), pending its sale to local purchasers or its re-export there from/ to other foreign countries; (ii) foreign supplier shall establish a subsidiary company (“The Consignee”), registered in Pakistan having bank accounts in the country under the relevant Pakistani laws/ rules for undertaking operational/ business activities on behalf of foreign supplier, as well as, local purchasers; (iii) the Consignee shall be bound to develop their own dedicated storage infrastructure located around port premises only for storing crude oil and petroleum products, duly licensed by Ogra, under the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016; (iv) the Consignee shall then sell the goods to Pakistan licensed purchasers (Refineries or OMCs) against of Letter of Credit through scheduled banks without requiring LC confirmation by international banks or advance payment in US dollars or Pak rupees, as mutually agreed by foreign supplier and Pakistani purchasers, as per applicable foreign exchange regulations; (v) for selling the bonded goods to the local purchasers, the Consignee shall file Electronic Form (EIF) with his Goods Declaration (GD) for Ex-bonding (EB), to clear the bonded goods for custody transfer to local purchasers for subsequent home consumption, on payment of all applicable duties and taxes by Consignee on behalf of purchasers; and (vi) foreign supplier may re-export their goods, deposited in the bonded warehouse on their account, to foreign buyers/ countries, subject to permission from the Ogra.

The sources said, based on existing proposals, Petroleum Division has formulated a policy guideline for import of crude oil and petroleum products on foreign supplier’s account.

However, since Pakistan has not maintained any strategic petroleum reserves as yet, the provision of allowing import on foreign supplier’s account can play a vital role in ensuring energy security in the country.

The proposed arrangement has following benefits for Pakistan: (i) crude oil and petroleum products will be readily available to the local consumers in Pakistan and the time taken in import procurement will be much shorter; (ii) local buyers will be able to procure product both in local and foreign currency and without any LC confirmation from international banks, thus leading to savings on account of banking charges; (iii) bulk buying by the supplier will result in sourcing of goods at cheaper rates and lower freight charges leading to substantial saving for him as well as the local customers; (iv) there is no loss of revenue to the government.

The procedure of repatriation of foreign exchange, filling of GD and clearance on payment of duties and taxes is to be followed on goods cleared for home consumption; and (v) implementation of this scheme in an automated and hassle-free environment is likely to attract foreign investment in bulk warehousing.

Moreover, it will add new storage capacity around port areas and generation of employment opportunities in warehousing business.

The sources said, Petroleum Division proposal came under consideration at the ECC meeting on June 5, 2033 but the forum differed and gave directions that the Petroleum Division shall deliberate the issue related to Custom Bounded Storage Facilities in a holistic manner, in consultation with FBR, OGRA and other concerned stakeholders and submit viable recommendations to the ECC in its next meeting for its consideration.

Insiders argue that the big players in petroleum business are opposing the proposal, fearing that small investors will hit their business. However, on the other hand, small investors argue that if the proposal sails through, they will also export the product from the customs bonded storage facilities which will bring foreign exchange for the country.

Copyright Business Recorder, 2023