ISLAMABAD: The government has asked oil marketing companies and refineries to replace low-quality petrol currently in use in the country with a better variety, albeit at a higher price.

The government move has, however, been cold-shouldered by the oil industry. It has made acceptance of the government’s proposal conditional upon several incentives, including a permission to keep marketing the existing quality, for a few years, at the price of the superior variety so that oil companies could have adequate funds for technology up-gradation, a petroleum ministry official told Dawn.

“Pakistan has been using 87 RON (Research Octane Number) motor spirit for the past 20 years, while the world has moved on to higher RON petrol. In view of sharp reduction in oil prices, it is the best time for switching over to 92 RON premier motor gasoline (PMG) at the earliest,” Petroleum Minis­ter Shahid Khaqan Abbasi told OMCs and refineries recently.

“Higher the RON, better the quality and engine performance and cleaner environment,” the official said explaining that all the petrol pumps in the country were selling 87 RON petrol while High Octane Blending Component (HOBC) was of 99-105 RON. The minister wanted to introduce 92 RON, commonly known as Euro-II gasoline, across the country.

Some oil industry players wanted allowing petrol sale of three different qualities with 87, 92 and 95 RON (as was the case in India) with price differential for an interim period to allow various consumer groups to have a choice on purchasing power.

This was not acceptable to the petroleum ministry which believed it would lead to comingling and adulteration in the market without giving a consumer the confidence if he/she was getting 87 RON for 92 RON price. A few hinted that some smaller players were already mixing jet fuel (Rs37 per litre) with petrol (Rs72 per litre) or benzene or kerosene with petrol because of taxation difference.

Technology constraint

Adil Khattak, the managing director of Attock Refinery Limited, said the production of premier motor gasoline (PMG) required Continuous Catalytic Reformer (CCR) technology for investment of about $300 million. “This is not feasible for ARL at this stage” because it was the first company for initiating Diesel Hydro De-Sulphurisation (DHDS) facility to produce high-speed diesel of Euro-II standard by end-March 2016. He said it was also impossible for ARL to blend imported higher octane, but OMCs could do this blending at their own.

Tariq Rizavi, the Managing Director of the Pak-Arab Refinery (Parco), said his company was already working on upgrading its facility to produce 92 RON which would be completed by November 2017. He said they were capable to blend and produce new grade but which would reduce production by 12,000 tons per month and result in higher Naphtha production that would needed to be exported with subsidy.

Pakistan Refinery’s Managing Director Aftab Hussain said more than 50 per cent petrol consumption was in the two-wheeler category whose drivers were happy with the current grade. He said the existing grade should continue until refineries were upgraded, but OMCs could consider blending subject to a ‘viable pricing mechanism’ for 87 RON.

Derek Alan Lawler, Managing Director of Byco, supported the higher grade with blending with imported products, but said the existing rules did not allow local refineries to import finished petroleum products like high octane.

Deputy Managing Direc­tor of National Refinery Jamil Khan said the company was in the process of installing DHDS and isomerisation plants expected to be completed by June 2017. NRL, he said, was not capable of 92 RON but blending could be done by OMCs.

Managing Director of the Pakistan State Oil Imranul Haque said his company was ready for blending of its share of local production initially and look into possibility of blending for other OMCs in a phased manner.

Generally, the oil industry in its official response to the government said the single grade 92 RON could be marketed in the country in 6-8 months provided the government formally allows import, distribution and marketing of 92 RON along with a notification of its specifications.

During that period it would also need to allow comingled product with local 87 RON product and imported 92 RON. “The price differential that may arise as a result of importing higher RON product will be passed on to the consumer,” he added. The price difference could range between Rs2 and Rs5 per litre.

Secondly, the local refineries should be allowed the same price for their 87 RON production that would be applicable to imported 92 RON PMG of PSO for 36 months to allow them to raise capital. “The price differential would be paid to the refineries from the time of their committing to upgrade their facilities. The amount to be kept in Escrow Account till final investment decision is taken on the upgrade”.

Published in Dawn, February 29th, 2016