Oil trade talks with India this week
ISLMABAD: Pakistan and India are to hold third round of talks on petroleum products trade on Thursday, with chances of bilateral oil business thinning down to only motor fuel (petrol).
A seven-member delegation from Pakistan comprising officials of the ministries of commerce, foreign affairs and petroleum and natural resources is scheduled to leave for New Delhi on Wednesday for a meeting of the joint working group on oil trade.
Background discussions with key stakeholders suggest the members of the negotiating teams have been advised to adopt a cautious approach and not to show too much eagerness in putting energy reliance on India in the matter of oil supplies and securities.
Therefore, two major products—high speed diesel and furnace oil—are off the ‘shopping list’ at least in the near future. In Jet fuels, Pakistan has a surplus.
That leaves only limited quantities of petrol where Indian companies need to compete under the international competitive bidding.
In the forthcoming two-day meeting, the two sides would deliberate upon details of petrol import.
Officials said Pakistan’s current import requirement of petrol is about 1.5 million tons per year which is being purchased
through spot tenders by oil marketing companies purely on commercial basis.
Indian companies could participate subject to fulfilment of requirements of tender documents.
Pakistan has indicated that it will consider petrol imports if India offers concession on pricing and provides international guarantees.
The Indian side, however, has said the pricing should be based on international import parity depending on quality adjustment, import duties and other related costs.
Besides security considerations, quality concerns are also reported to have become a stumbling block in the way of furnace oil and HSD trade.
While a lot of work would be required on standards, specifications, infrastructure, banking, visas, warehousing and pricing on the sidelines of South Asia Preferential Trade Arrangement (Sapta), it was clear in previous two rounds of talks between oil and gas experts that the furnace oil and HSD trade could not materialise until 2014, perhaps never in the case of furnace oil.
In initial general discussions, the Indian side had indicated that they could provide a range of petroleum products like furnace oil, HSD and petrol besides related other products like pet coke, sulphur, lubricants and bitumen and make quality adjustments.
In formal talks, however, they confirmed that major parameters of furnace oil specifications of Pakistan were different from Indian products and hence ‘the technical constraint’.
The Indian side had requested a waiver in specifications that was not acceptable to Pakistan.“We have already told them that waiver was simply out of question because quality has to be adhered to as Islamabad had binding contracts with
Independent Power Producers (IPPs).
Pakistan imports to the extent of six million tons a year, including one million tons through long-term contracts.
On HSD, officials said Pakistan had a long-term contract with Kuwait Petroleum Company until December 2014.
Given Pakistan State Oil’s contract with KPC and Parco’s pipeline capacity utilisation from Karachi to Multan, the requirement for its import from India was also limited.
Pakistan imports about four million tons of HSD, with 75 per cent through long-term contracts.
Indian companies could participate in international bidding subject to terms and conditions of the tender documents.
On top of these technicalities and legalities, some procedural and regulatory issues would also be examined in subsequent meetings before operationalisation of formal trade in petroleum products.
Sources said that as part of wide-ranging bilateral talks, the two sides would have to enhance banking services to facilitate business through letters of credit and put in place an online system of Sapta certificate recognition.
The two sides will also have to put in place a direct routing of postal and courier services, multi-city and multi-entry non-reporting visas for business people and warehousing and tankage and infrastructure facilities like crane and forklift at Wagah border.
India currently has a refining capacity of about 213 million tons per year against its domestic requirement of about 148
million tons and exportable surplus of 65 million tons. It was currently in the process of expanding refining capacity to 310 million tons a year by the end of 2017 against its expected consumption of about 186 million tons, leaving an increased exportable surplus of 124 million tons.