Refineries for prioritising local production
Pakistan's oil refineries have warned the regulator that over-reliance on imported fuels without properly prioritising local production will heighten risks to the energy supply chain and may cause disastrous consequences, especially at a time when the country is recovering from financial challenges.
In a joint letter written to the Oil and Gas Regulatory Authority (Ogra) chairman, the industry players said that local refineries formed the backbone of heavy industrial development and were intrinsically connected to the country's defence and energy security needs.
They also referred to Ogra's response in response to their earlier letter dated February 27, 2025 and a meeting with industry executives held on March 3, 2025 in Karachi.
"We wish to express our concerns regarding the contents of Ogra's aforementioned letter, which, unfortunately, appear to differ from the mutual understanding reached during the meeting," the refineries said in their latest communication.
During the meeting, they said, all refineries raised serious concern over the insufficient product offtake, resulting from the failure of oil marketing companies (OMCs) to procure the committed quantities of high-speed diesel and motor gasoline (petrol), as agreed in periodic meetings.
The refineries requested Ogra's intervention, which was acknowledged by the authority. "However, we believe that the explanation provided in Ogra's letter regarding the determination of insufficiency of local production before approving imports is misconceived and misleading."
As clearly stipulated under Rule 35(g) of the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016, an OMC is required to give an undertaking to Ogra that it shall first lift the local product before opting for imports, the refineries said, arguing that it was the premise on which the OMCs were granted licences.
"Enforcement of such compliance rests with Ogra, which is equally empowered to take action against any defaulting OMC under Rule 69 of the Ogra Rules 2016."
Moreover, the refineries stressed that it was Ogra's responsibility to protect the public interest. Allowing imports when local production is not being lifted and at the expense of the country's foreign exchange and consumer prices (resulting from the higher inland freight equalisation margin), undermine the spirit of Ogra's statute and regulatory framework.
As already explained in the refineries' joint letter, all the refineries have contractual and commercial agreements with the OMCs for the supply of petroleum products. "With regard to Ogra's statutory responsibilities, functions and the corresponding regulatory role, we believe it is essential for Ogra to ensure that the lifting of refineries' products is prioritised before allowing OMCs any deficit imports, in line with Rule 35(g)," they said.
Additionally, Ogra must ensure that only those OMCs commence operations that hold a valid licence and have contractual or commercial arrangements with the local refineries.
"We sincerely appreciate Ogra's initiative to incorporate a "take or pay" clause into our supply agreements with OMCs to address the uplifting issues. However, as already explained, the refineries have binding contracts with OMCs and any such changes can only be incorporated if they are mutually agreed upon by all stakeholders, with a clear implementation mechanism. Ogra must also ensure the enforcement of the overall supply chain arrangement," the refineries said.
"You would agree that refineries are strategic assets of the country and their sustainability and continuity are essential for the prosperity and economic development of Pakistan."
They assured Ogra that all refineries were fully compliant with the provisions of the Ogra Ordinance 2002 as well as rules, regulations, technical standards and directives of the authority in true letter and spirit.
"In light of the above, we request Ogra's proactive role in addressing the local refineries' product uplifting issues on priority to ensure the smooth functioning of the supply chain," they added.
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He stated that digitization of gas flow stations like Sale Meter Station, Town Border Station and Consumer Meter Station is giving real-time information to companies and helping isolate the loss-making areas. Minister for Petroleum Division observed that in-line with licence condition of the Sui companies, the UFG targets need to be reviewed periodically. He also enquired after the UFG study done in 2018 which was valid until 2023, on how OGRA is benchmarking UFG targets thereafter. OGRA Chairman responded that earlier OGRA used to apply benchmark on both T&D UFG, however, now that practice was discontinued in FY23 and UFG targets are set separately for transmission and distributions segments. It was noted that OGRA is considering to do a new study on UFG benchmarking which would take 6-8 months' time. Minister for Petroleum Division advised that new UFG study be completed by OGRA by November 30, 2025. He also stressed upon the need that sub-committee should make recommendations at review of revenue requirements on quantitative basis (instead of qualitative basis) keeping materiality of report before the next meeting of the committee. Insiders claim that the Power sector Task Force has done extensive work on the issue of excess gas in the country and how to resolve RLNG supply issue. The officials also confirmed that senior members of the Task Force made a detailed presentation to the Prime Minister and senior government ministers and officials on roadmap for RLNG cargoes and ways to reduce gas prices for industry and power sector. Sources say this was aimed at improving energy security by increasing use of domestic gas and increasing exports through reduction of gas price for industry and power. Among various measures proposed, the RLNG ring-fencing mechanism was suggested to be done away with and having one blended gas price for industry and power. 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