Oil spills are a serious offence under international standards and can bankrupt oil companies due to stringent laws, heavy penalties and compensation costs to cover losses to human lives, properties and the environment.

The latest example of such an incident cost BP $21-28 billion for the 2010 deepwater spillage in the United States. Besides the reputation cost, the company had to wind up operations in many countries to fund the bill.

In Pakistan, the law is generally silent about such spillages or incidents are buried under the carpet even though the country offers one of the highest lucrative returns and incentives to oil and gas firms. Pakistan meets almost 85 per cent of its fuel requirements through imports.

The maximum penalty under Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules, 2016 is Rs10 million or about $93,000 — peanuts in a country where oil firms earn billions of dollars in profit every year and where libel and defamation cases can attract Rs10-20bn in compensation.

Rule 69 of the said Rules say: “A person, who contravenes any provisions of the Ordinance, these rules, terms and conditions of the licence, or the decisions of the Authority (Oil & Gas Regulatory Authority), shall be punishable with a fine which may extend to Rs10m and in case of a continuing contravention with a further fine which may extend to Rs1m for every day during which such contravention continues”.

The Ogra exercised its powers from the said rule and imposed a penalty of Rs10m on Shell Pakistan Limited for failing to fulfil its legal responsibility (that led to the Bahawalpur accident and oil spill on June 25).

In Pakistan, the law is generally silent about oil spillage, and incidents are buried under the carpet even though the country offers one of the highest lucrative returns and incentives to oil and gas firms

These were under the Ogra Ordinance 2002, the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016, Petroleum Rules 1937, Ogra’s notified technical standards (for road transport vehicle, container equipment for transportation of petroleum), National Highway Safety Ordinance (NHSO) 2000, Motor Vehicles Ordinance 1965 and Motor Vehicle Rules 1969.

Moreover, the company was ordered to pay compensation to the affected families at the rate of Rs1m for the deceased and Rs0.5m for the injured. The total cost on account of compensation and penalty works out at around Rs275m.

The incident has so far caused over 215 deaths and injured more around 100 persons besides annihilating 75 motorbikes and a few cars.

Oddly, the government has already paid Rs2m compensation each for the dead and Rs1m for the injured out of public money. The probe nevertheless proved beyond doubt the country has a large number of moving bombs on its roads in the shape of about 12,000 unsafe tanker lorries carrying highly explosive fluids.

Insiders suggest the non-compliance with laws, rules and standards was so serious that it could have led to the revocation of the OMC’s marketing licence and a penalty for each violation would have been a major reputation risk.

Two factors limited the penalty; up to 85pc tanker lorries transporting oil products are reported to be non-compliant with laws and standards and the regulator could not afford to send packing an international firm since who could have landed the matter in litigation for being singled out besides causing supply disruption.

As per requirements of the Petroleum Rules 1937 read with the Petroleum Act 1934, the transportation of petroleum products via road through tank lorries is a licensed activity and requires the licence of the Chief Inspector of Explosives (CIE).

The maximum penalty under Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules, 2016 is Rs10 million

In this regard rule 77 required that petroleum in bulk shall not be transported by land except under a licence granted under the rules in a vehicle of a type approved in writing by the Chief Inspector of Explosives.

Also, all such vehicles other than those exclusively used for the transport of petroleum shall have a stamped, embossed, painted or printed warning exhibiting in conspicuous characters the word ‘Petrol’, ‘Motor Spirit’, ‘Kerosene’ or an equivalent warning of the nature of the contents. The vehicle and its fittings should be maintained in good condition.

Investigation proved that the said tank lorry (TLJ-352) was hired by the SPL from its haulier, Marwat Enterprises and the lorry was found to be non-compliant to the Pakistan Petroleum Rules 1937.

The said tank lorry was also found in non-compliance with rules 63, 64, 65, 66, 67,68, 69, 70, 71, 72, 73, 74, 75, 76,78, 79, 80, 81, 82 that define all the safety requirements from the type of tank to procedure of filling, decanting of tanks, transportation, prevention of accident and prevention of escape of petroleum.

The Ogra believed that Pakistan is a net oil importer and the imported product (specifically petrol) is transported from Karachi to the up country solely through tank lorries; and demand for the petrol has increased manifold.

Therefore, companies have to outsource tank lorries via contractors to avoid any dry out or supply disruption at petrol pumps.

However, the usage of such hired tank lorries is subject to the strict adherence of minimum safety standards, which includes compliance to the Petroleum Rules 1937.

As per NHSO-2000 requirement, a 50,000L tank lorry must have a 5-6 Axle but the lorry that met accident near Bahawalpur had a 4 Axle.

Shell Pakistan provided a certificate of fitness by the Motor Vehicle Examiner issued in Quetta which was found to be fake.

Shell Pakistan also failed to provide a pre-load check list of its own and presented a check list of a private contractor which was also not followed for the ill-fated tanker, otherwise its filling should have been denied.

Published in Dawn, The Business and Finance Weekly, July 10th, 2017