Oil import on foreign supplier’s account: OCAC requests govt to convene meeting of stakeholders

ISLAMABAD: While raising questions on approval of policy guidelines regarding import of oil on foreign supplier’s account through customs bonded storage facilities, Oil Companies Advisory Council (OCAC) has requested Petroleum Minister to convene a meeting of stakeholders for an amicable solution of this matter.

In a letter to Minister of State for Petroleum Musadik Malik, copies of which have also been sent to Prime Minister and Chairman OGRA, OCAC Chairman, Waqar Siddiqui stated that it has come to the notice of oil industry through media reports that the ECC has approved the policy guidelines titled “import on foreign supplier’s account through custom bonded storage facilities” presented by the Ministry of Energy - Petroleum Division (MEPD). In this connection, OCAC referred to its letters of December 21, 2022 and June 7, 2023, through which OCAC had submitted comments on the policy.

OCAC has reiterated that the approved mechanism is not beneficial for the country and implementation of it may have serious ramifications on the oil industry as a whole. The oil industry’s concerns have been clearly highlighted in its letters; however, these concerns have not been resolved as yet.

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

On behalf of the industry, OCAC has highlighted following key concerns that need to be addressed in order to avoid any unfavourable scenario:

1- Threat to Local Production and Supply Chain Integrity- This arrangement would adversely affect local production and may lead to exploitation of the local refineries, which are already struggling to dispose-off their MS/ HSD volumes due to multiple reasons. Consequently, this will have massive economic effects not only on the oil industry, but also on the overall economy of the country.

Furthermore, planning of import/ local supplies will be compromised, as well, and presence of international players with their own interests above our national interest may lead to collapse of already delicately balanced product supply chain of the country.

2- Impact of price/ benefit for end customer -In the absence of a framework, the benefit of cheaper product may not cascade to the end-customers as the importer would remain the beneficiary of such imports.

3-Port Congestion - Existing importers are already facing setbacks due to long waits, especially during agri season. This arrangement would add to the woes of the existing importers as import and export by foreign suppliers will have to be accommodated using the current port infrastructure; any such arrangement is not feasible without development of additional jetties and may add to port congestion.

4- Exposure to foreign payments - The proposal is based on the understanding that it will lead to savings in terms of foreign exchange; this understanding is incorrect.

The guideline cites that the remittance on account of imports would not be allowed at the time of imports; however, the impact of forex flowing out of the country would still remain as in current practice where all importers have to transfer forex based on terms of supply arrangements, e.g., 30 days from BL, etc., and as such with no positive impact on the forex reserves of the country.

5- Impact on White Oil Pipeline (WOP) input- There is no structure defined for molecules imported by foreign suppliers in the draft guidelines to find its way in WOP. Road movement for purchases Ex-imports by foreign suppliers would negatively impact WOP usage in case priority for WOP input is unavailable.

6- Strategic Petroleum Reserve - The proposal highlights that strategic petroleum reserves are not being maintained in the country and projects subject arrangement as an alternate for ensuring energy security. This understanding is grossly misleading as the proposed guideline does not consider product stored under such arrangement as product imported in the country and ownership of the product lies with the foreign supplier. This misconception could significantly jeopardize the country’s strategic interests and result in an excessive reliance on foreign suppliers who may prioritize their commercial interests over those of Pakistan.

7- Absence of regulatory framework for ensuring guarantees on consistent availability of product - The main purpose of allowing foreign suppliers to import is the consistent availability and streamlined supplies of product while allowing re-export negates this purpose and impacts port usage rendering country storages being utilized as “intermediary warehouse” by foreign suppliers to export while quality parameters may also remain compromised.

8- Limited Existing Storage Facilities - Pakistan’s storage facilities at the port are currently operating at maximum capacity, ensuring coverage of only 2-24 days. Allowing foreign suppliers to bring in imports without expanding storage capacity would not enhance the overall fuel reserves of the country. Instead, it would compromise the existing reserves as they would be occupied by foreign companies, further undermining the country’s fuel stock dependency.

“We seek your assistance for resolution of this matter and request to urgently schedule a meeting with industry members. We believe that by working collaboratively under your valuable guidance, we can arrive at an amicable solution that addresses the concerns of all parties involved,” said Chairman OCAC in his letter.

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