Pakistan has moved towards Euro V standard fuel despite the fact that a majority of locally produced vehicles are of Euro II standard.

Only Honda Atlas Cars has been rolling out Euro IV vehicles. Others, including bike assemblers, have been making Euro II vehicles on the excuse that refineries are still producing Euro II fuels.

Pakistan has banned imports of petroleum diesel of less than Euro V standard with effect from Aug 1 and Jan 1, 2021, respectively.

The shift to higher-standard fuels will push oil marketing companies (OMCs) and refiners to make major operational changes with huge investment in a tough business environment.

Sources in the refineries and OMCs have also shown their concerns about the pricing of Euro V petrol, which costs Rs120 per litre as opposed to Rs106 per litre of normal petrol. Imported Euro V petrol is currently available in selected cities on a few OMC outlets.

Less sulphur content makes Euro V fuels better for the environment. In Pakistan, Euro II fuel has been commonly used since 2017. It contains sulphur content of 500 particles per million or less. With Euro V fuel, the proportion drops to just 10ppm or lower.

The adoption of Euro V standards helps protect the environment from the effects of climate change and global warming.

Euro V fuels, particularly Euro V petrol, has substantially less benzene and poses meaningfully lower health risks associated with material handling for industrial workers.

Refineries and OMCs are concerned about the pricing of Euro V petrol, which costs Rs120 per litre as opposed to Rs106 per litre of normal petrol

Many other countries have been using Euro IV or better fuels for years. Europe, for instance, shifted to Euro V standards more than 10 years ago. India has been using Euro IV fuels and is currently moving to Euro VI.

However, one issue that causes anxiety among the refiners and OMCs has been the influx of Iranian petrol and diesel through informal channels into cities and towns across Pakistan. It poses a serious threat to people’s lives and deprives the national kitty of billions of rupees of revenue.

The low-grade Iranian oil does not meet Pakistan’s quality requirements. Its frequent use will hamper the government’s ability to upgrade the fuel market to Euro V standards. The smuggled fuel not only damages the environment but also takes a heavy toll on the lives and properties of people since oil smuggling is in itself a dangerous business.

Industry people estimate a revenue loss of over Rs100 billion per annum from levies and taxes owing to fuel smuggling. The availability of smuggled products has forced a leading OMC to close down various outlets in Balochistan.

Market sources say a number of OMCs are involved in mixing Iranian petrol and diesel to their products owing to the price difference. In remote towns, people and even children are seen selling petrol from their roadside dispensers despite police patrolling in the area.

Industry officials, however, disagree with the suggestion that OMCs are doing illegal fuel mixing. With strict checks and balances as well as mobile quality-checking teams, they say it is impossible for OMC to mix its products with Iranian fuel. OMCs have played their part to ensure no smuggled fuel is sold from their outlets, they insist.

OMCs and refineries claim they have enacted strict control mechanisms to maintain the integrity of their supply network. Attock Refinery Ltd, for instance, has been purposefully designed to use crude oil produced in Pakistan, which it processes into refined products and supplies onwards through pipelines to Potohar, Khyber Pakhtunkhwa and Northern Areas.

Pak Arab Refinery, National Refinery and Pakistan Refinery have long-term agreements with state-owned companies of oil-rich Arab countries.

Byco Petroleum, which has two refineries and one OMC, buys its crude oil from the open market and engages with world’s renowned oil traders after following rigorous procedures.

OMCs claim they buy their products through reputable traders and follow well-defined procedures. They use smart technologies and control mechanisms to ensure the domestic distribution remains clear of smuggled oil.

Industry people say smuggling can be curbed permanently if the authorities take serious steps to engage with local communities, create jobs and opportunities by improving the economic condition of impoverished areas in Balochistan where people live in abject poverty and are forced by circumstances to engage in risky oil smuggling business.

They believe the Pakistan Customs and Frontier Corps are ill-equipped to monitor the vast region surrounding the Pak-Iran border.

Most of the Iranian fuel being smuggled into Pakistan is through the porous border along Balochistan. Fuel being smuggled through the sea has been curtailed to a large extent due to strict monitoring by the maritime security agencies.

Law enforcement agencies often intercept trucks carrying smuggled fuel in all four provinces. It is safe to say that this smuggled fuel ends up back in the informal market all over Pakistan.

According to a central leader of the All Pakistan Petroleum Retailers Association, Samir Najmul Hussain, dabba stations exist in all remote areas of the country, including on the outskirts of Karachi. They sell Iranian diesel and petrol at a discount of Rs10-15 per litre depending on the official price of the locally produced products. “Iranian products are definitely less than the Euro II grade,” he claimed.

He said the price difference between Iranian diesel and petrol and local products in Quetta is about Rs40-50 per litre. In the areas closer to the Iranian border, the smuggled fuel is cheaper.

One cannot expect a determined approach from the powerful lobby of the local auto industry, which has remained lethargic in terms of switching over to upgraded engine technologies and better safety standards.

For example, after keeping the design and specifications unchanged for 30 years, Pak Suzuki Motor Company ceased to produce Suzuki Mehran recently. The company still rolls out decades-old Bolan and Ravi rather proudly.

With no regulatory check and balance, other assemblers have also waited for a decade before instituting a complete model change. With obsolete engine technologies, the auto sector has been continuously jacking up vehicle prices on the pretext of devaluation — something that contradicts their claims about achieving higher localisation.

Published in Dawn, The Business and Finance Weekly, September 28th, 2020