ISLAMABAD: The country’s two major petroleum stakeholders — the Oil and Gas Regulatory Authority (Ogra) and all five oil refineries — are at loggerheads, with both sides accusing each other of failing to fulfil their operational and regulatory responsibilities, resulting in foreign exchange losses.

At the centre of the issue is the insufficient capacity utilisation of refineries due to unchecked imports of refined products, despite collective decisions taken by the oil industry, the regulator and the government. Interestingly, under the law, no oil import can take place without regulatory clearance.

Both the refineries and the regulator accuse each other of misrepresenting their joint decisions during implementation and shifting blame regarding the upliftment of local refinery products by oil marketing companies. Ogra suggests additional agreements between refineries and oil companies, but refineries argue that such agreements hold no value if the regulator fails to fulfil its regulatory role.

In a communication to Ogra and the government, the chief executives of all five local refineries — Parco, Attock, Cnergyico, National Refinery and Pakistan Refinery — expressed concern over insufficient product off-takes resulting from the failure of oil marketing companies (OMCs) to uplift the committed quantities of diesel and petrol as agreed during the periodic product review meetings led by Ogra, and requested regulator’s committed intervention.

However, refineries said a subsequent claim by Ogra “with respect to the determination of insufficiency in local production before approving imports is misconceived and misleading”.

The refiners pointed out that as clearly stipulated under Rule 35(g) of Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016 (Ogra Rules), an OMC was required to give an undertaking to Ogra that it shall first uplift local product before opting for imports.

“This is the premise on which OMCs are granted their licences,” the refiners said, emphasising that enforcement of such compliance rested with Ogra, which is equally empowered to take action against any defaulting OMC under Rule 69 of Ogra Rules 2016.

Moreover, it is Ogra’s responsibility to protect the public interest. “Allowing imports when the local production is not being uplifted at the expense of country’s precious foreign exchange and consumer price (resulting from higher IFEM) undermine the spirit of Ogra’s statute and regulatory framework,” they said, referring to the inland freight equalisation margin.

As already explained in the refineries’ joint letter, all refineries already have contractual or commercial agreements with OMCs for the supply of products.

“With regard to Ogra’s statutory, responsibilities, functions and corresponding regulatory, we believe it is essential for Ogra to ensure that refineries’ product upliftment is prioritised before allowing OMCs any deficit imports, in line with Rule 35(g),” the refiners said.

They said it was Ogra’s responsibility to ensure that only such OMCs commence operations which have a valid licence and contractual or commercial arrangements with local refineries.

The refiners welcomed Ogra’s proposal to incorporate a take-or-pay clause in the refinery-OMC contracts but said the refineries already had binding contracts with OMCs.

In any event, such changes can only be incorporated if they are mutually agreed upon by all stakeholders, with a clear implementation mechanism, and the enforcement of the overall supply chain arrangement is monitored and ensured by Ogra.

The refineries claimed that they were “strategic assets” for the country and that their sustainability and continuity were essential for prosperity and economic development, as they were intrinsically connected to the defence and energy security needs of the country.

“Any over-reliance on imported fuels without properly prioritising local production will not only increase the risk to the country’s energy supply chain but has the potential to result in disastrous consequences, especially as Pakistan continues to recover from its ongoing financial challenges,” they said.

Ogra, on the other hand, said that standard operating procedures were a structured evaluation of the insufficiency of local production for deciding imports and steps being to prioritise local upliftment. It said the applicable rules mandate the determination of ‘insufficiency in local production’ before approving imports rather than a ‘deficit’.

“Need not to explain that insufficiency refers to the inadequacy in meeting demand whereas deficit implies a quantifiable gap or shortfall,” Ogra said, adding that “ensuring sales and supplies of product to OMCs being a commercial matter is not Ogra responsibility”.

Published in Dawn, March 22nd, 2025