AS the petrol crisis spread to Karachi on Monday, with panic buying at pumps on rumours of imminent closures, the minister of petroleum went on air to strenuously insist that the petrol shortages are not the result of any financial difficulties at PSO, but grew out of an unexpected spike in demand in the first two weeks of January and an unscheduled closure of a refinery.

This line departs from an earlier one taken by officials at PSO where they argued that defaults on furnace oil payments, arising from the circular debt, were hampering their ability to import all other oil products. As late as Jan 16, for instance, the company put out an advisory saying “[d]efault in payment for Furnace Oil L/C’s has also impacted PSO’s ability to import white oil products including petrol as the company is unable to open further L/C’s until the clearance of the current outstanding dues”.

Also read: Amid mounting criticism, petroleum minister apologises for fuel crisis

The advisory further mentions “SOS letters written repeatedly” to various ministries since October. In one of these SOS letters, dated Dec 24, then PSO MD warns of “an imminent supply chain breakdown” as a result of default on 16 LCs between Nov 28 and Dec 24.

A breakdown of those 16 LCs shows that 10 of them were for furnace oil imports, and the remaining six were for other fuels like motor gasoline and diesel. Financial problems from the circular debt had already jumped across categories and were impacting imports of all fuels by Dec 24.

The same day that PSO put out this advisory, the petroleum minister went on air and angrily denied that any SOS letters were ever sent.

“Show me these letters,” he challenged the anchor. “Don’t believe everything you read in the papers.”

Instead, he insisted, the crisis was due to an unexpected surge in demand and an unplanned closure of a refinery. Immediately officials at PSO put out a revised advisory on the crisis that dropped all mention of defaults and financial problems. Instead the revised document placed all emphasis on “an upsurge in demand of Mogas primarily due to fall in its prices”, as well as to “unplanned shutdown of [a] major local refinery”.

The very next day, a number of channels put two of those SOS letters on the air, zooming in on the language in them. In his next appearance on TV, the minister was again asked about those SOS letters, and what they revealed about the true cause behind the crisis. This time he did not deny their existence, but said simply that “these letters are a routine matter” and one should not read too much into them.

So let’s ask this: how much should we read into the advisories being put out by PSO? For example, a closer look at the revised advisory shows that the spike in demand being blamed for the shortages lasted for only the first three days of January, since motorists waited for the downwardly revised prices to take effect before filling their tanks.

On Jan 1, total sales of petrol nationwide were around 27,000 kilolitres, far above the estimated forecast of 12,000. On Jan 2 and 3 this dropped to 15,000 before dropping to practically zero on Jan 4, as tanks around the country were largely topped up. From Jan 5 till 15, sales go from a peak of 12,000 to 5,000 kilolitres, at or below forecast.

The refinery shutdown also didn’t last more than four days. It began on Jan 8, when output fell from 890 tonnes of petrol to 206 tonnes. From Jan 12, the refinery in question — PARCO — has been operating at or above its pre-shutdown levels. Considering the refinery is located less than a day’s drive from most petrol pumps in Punjab, how is it that the shortages persisted for more than a week after its output had been restored fully?

Sources at PNSC, the state-owned shipping company that arranges vessels for PSO, confirm that the latter’s financial difficulties have severely hampered its ability to import oil. “They’ll place an order for a vessel one day, only to cancel it the next because they don’t have money to pay.”

As an example, the source says that on Dec 15, an order was placed for eight vessels for delivery in January. PNSC nominated the ships, but on Jan 1, PSO cancelled five of the cargoes, citing lack of funds. On Jan 7, they cancelled two more.

These cargoes were for furnace oil, used in power generation, but PNSC sources say financial difficulties have disrupted imports of refined oil products as well. The last vessel that arrived on Jan 12, for instance, “was ordered on Jan 1, then they changed it to Jan 5 citing shortage of funds”, says the source. “Then they changed it again to Jan 7.”

In fact every shipment of oil is now arranged as if it were an emergency, says the source. “They asked us for a vessel to be ready for loading at Oman on Jan 22,” he says. “Then last week they called and asked for the date to be moved up to Jan 18 instead.”

Such reschedulings have become routine, he says, and they illustrate the haphazard and ad hoc manner in which imports have to be arranged given the extreme uncertainty that surrounds PSO’s financial situation.

On another occasion a vessel with 55,000 tonnes of petrol was left floating at outer anchorage for five days before it could berth because another vessel was in the process of being discharged. A normally functioning supply chain would see the arrival of vessels in a way to prevent their overlap. The daily cost to PSO for a vessel is $15,000, according to the source.

The oil supply chain is in serious disarray, living day to day depending on availability of funds, and therefore very vulnerable to disruption. The spike in demand in the first three days of January and the four-day curtailment of supplies from PARCO added to the problem, but they did not create it.

Published in Dawn January 20th , 2015

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