ISLAMABAD: The Oil Companies Advisory Council (OCAC) has urged the government to extend support to aggressively combat and dismantle the smuggling network, reclaim control of the market and restore the momentum of the struggling oil industry.
In a letter to Secretary Petroleum, Chairman OCAC, Adil Khattak has drawn attention to the issue that poses a severe threat to the oil industry, and consequently jeopardizes the stability of government revenue streams. The staggering influx of 4,000 MT of smuggled fuel daily into Pakistan, as confirmed by the Oil and Gas Regulatory Authority (Ogra), is bleeding the nation of approximately $35.6 million per month. This national crisis demands swift and aggressive action.
Amended oil refinery policy notified
The sales trend of MS (Motor Spirit) and HSD (High Speed Diesel) during the fiscal year 2022-23 starkly resembles the figures recorded during the tumultuous period of the COVID-19 pandemic in FY 2019-20. While the decline in GDP growth rate from 6.11% in FY 22 to 0.29% in FY 23 may partly explain this downturn however, unfortunately, the Year To Date sales of MS and HSD have further plummeted by approximately 6.5% (July-February FY 23-24 vs. FY 22-23), casting doubts on the veracity of projected GDP growth rate of +1.7% for FY 24. Similarly, the Monthly To Date sales figures of MS and HSD in March 2024 exhibit an alarming variance of -12% and -21% respectively, against the forecasts established in the Product Review Meeting for the harvesting season. Such high negative variances signify product glut, lower refinery throughput, choking of WOP and restrained sales volumes.
The OCAC maintained that the illicit trade has disrupted the entire supply chain of petroleum products adversely affecting the refinery health, White Oil Pipeline operations, and the profitability of Oil Marketing Companies (OMCS). The significant price disparity between legitimate and smuggled fuel coupled with widespread availability and weak border controls, is causing irreparable damage to legitimate businesses.
Any hindrance to local POL production necessitates increased imports, resulting in substantial financing costs for OMCs as they operate on razor-thin margins.
The oil industry continues to lose business to the illicit trade; simultaneously, the government continues to lose revenue from Petroleum Levy, Customs Duty, Corporate Tax, Super Tax, etc. Reportedly, the Petroleum Dealers of retail outlets have also raised grave concerns about the unabated surge in fuel smuggling to Pakistan, causing them sales and revenue losses.
The unchecked proliferation of substandard smuggled petroleum products not only drains the government revenue, but also fuels a shadow economy, making it increasingly challenging to monitor and regulate illicit activities.
The detrimental effects of substandard smuggled petroleum products on the environment, vehicle engine, and safety standards should not be left unattended anymore. The influx of fuel through illicit channels will gravely impact the foreign direct investment required for the upgrade and modernization of refineries under the Brownfield Refinery Policy.
OCAC has submitted following recommendations for implementation without delay: (i) implement robust enforcement measures to control the expansion of the illicit sector (border control);(ii) conduct well-coordinated, regular nationwide crackdowns in collaboration with federal and provincial authorities;(iii) declare smuggling a grave crime, categorized as a punishable offense. Propose legislation to Parliament, advocating for corporal punishment to deter smuggling and safeguard corporations from its detrimental effects. The federal/provincial authorities / Chief Secretaries must mobilize their teams and intensify efforts to curb cross-border movements, ensuring stringent penalties including imprisonment for offenders;(iv) shut down illegal petrol pumps, immediately and take punitive action against them; and (v) launch comprehensive anti-smuggling campaigns to raise public awareness and support.
Copyright Business Recorder, 2024
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