ISLAMABAD: Amid protest and resistance by the oil industry, the government has ordered ban on import of petrol and diesel of less than Euro-V standard with effect from Aug 1, 2020 and Jan 1, 2021 respectively.

This has put the oil industry and the authorities in yet another conflict when the two sides were already poles apart on petroleum pricing mechanism and maintenance of 20-day stocks, leading to serious supply disruptions in the recent months.

The oil industry has expressed inability to abide by the fresh instructions, particularly because of such a short notice and has warned of Rs7-8 per litre price hike and $200 million annual foreign exchange loss. It said the country’s motor vehicle fleet was also not ready for such a steep switchover.

On Wednesday, the Directorate General of Oil of the Petroleum Division notified specifications of Euro-V petrol of all three grades (RON 92, 95 & 97) and asked the Oil & Gas Regulatory Authority (Ogra), Hydrocarbon Development Institute of Pakistan (HDIP) and oil industry to implement these specifications.

A week ago, the specifications for Euro-IV & V high-speed diesel were notified by the same office in line with June 4 decisions of the Cabinet Committee on Energy (CCoE) endorsed by the federal cabinet on June 23.

Under the new specifications, among other things both products should not contain more than 10ppm (particles per million) from existing level of 50ppm. The government decision, although taken at the highest level, contain a major dichotomy given local refineries cannot produce products of such standards and parts of the country would continue using existing standards. It would remain a challenge for consumers in many areas whether they were paying the price for actual product of high standard or not.

Under the notification issued by the DG Oil, “the process of switching of petrol imports to Euro-V specifications shall be initiated forthwith and imports of petrol below Euro-V specification shall not be allowed to any OMC beyond Aug 1, 2020”.

Likewise, it said that “all imports of diesel shall conform to Euro-V specifications with effect from Jan 1, 2021”. In the interim period, efforts shall be made to import Euro-V, however, in case of non-availability under the long-term agreement with Kuwait Petroleum Corporation, diesel of Euro-IV specifications shall be imported. Current mechanism for marketing of diesel and petrol with regard to pricing and freight component shall prevail.

Also, the prevailing pricing formula would continue i.e. average of 5-day Mean of Plats Arabian Gulf (MOPAG) for Euro-V diesel and petrol centered on bill of laden date plus premium, freight and incidental charges on actual basis. Pricing of imported Euro-V diesel and petrol would be on the basis of PSO’s actual landed import price.

Pricing mechanism for local refineries for producing diesel and petrol would be based on PSO’s actual landed import price of Euro-V diesel and petrol, as per current practice with sulfur content penalty factor for diesel/RON differential penalty for petrol, as is being presently followed.

The notification also allowed co-mingling and intermixing of imported and locally produced grade by refineries and OMCs to improve the overall specification of the product at distribution levels. “Alternatively, cleaner products could be used more upcountry to reduce the air pollution in the plains where it is more pronounced”.

The oil industry has asked the government to adopt a phased approach by first introducing Euro IV specification as others countries did allowing development of robust and reliable supply chain, preventing price shock to consumer, better analysis of incremental environmental benefits, adjustment of prevailing vehicle population to the new specification and allowing local refineries to upgrade through capital investments.

It said the industry also currently faced the challenges of product availability which will require 3 to 6 months’ time for preparing and putting supply arrangements in place for new import specification of Euro-V. Even the state-run PSO required at least 60 days prior notice to arrange product.

The move, the industry believed, would have huge impact on storage and logistics of OMCs at port, depot and retail outlets level which needs to be closely considered for uninterrupted supply and smooth operation of distribution network.

The oil industry has reported that Pakistan currently met 70-80pc of petrol requirement through imports from Arab Gulf, Regional refiners and blenders. With the proposed end point of 205C and sulphur content of 10ppm, more than 50pc of this quantity cannot be supplied from current sources, and the shortfall will have to be sourced from Europe.

As Pakistan has a large number of two- and three-wheelers (consuming more than 50pc of petrol) as well as very old cars still running, the ultimate objective of bringing down emissions levels significantly would still be a challenge and hence all stakeholders including automobile manufacturers and assemblers should also be taken on board.

Published in Dawn, July 9th, 2020