Refineries seek end to smuggled POL products citing threat to investment

• Pakistan's local refineries set to start $5-6bn investment.
• OCAC, in letter to SIFC, draws attention to threat to investment.
• Smuggled POL products also causing loss to OMCs, govt. 

ISLAMABAD: Pakistan's local refineries, which are set to start $5-6 billion investment for their upgradation projects, have sought an end to the smuggled petroleum products from Iran, The News reported Monday. 

The development comes after the refineries signed Implementation Agreements (AIs) with Oil & Gas Regulatory Authority (Ogra) to start the $5-6 billion investment in six years time. 

Oil Companies Advisory Council (OCAC), in its letter written to Special Investment Facilitation Council (SIFC) on April 7, drew attention to a serious threat to the opportunity of huge investment in the country owing to the rise in smuggled products. 

The refineries have linked their investment for upgradation projects to ensure Euro-V diesel and petrol with total end to the influx of smuggled POL products from Iran on sustainable basis. 

Otherwise, the expansion and upgradation of the refineries would not be economically viable anymore as the investment is being planned on optimum capacity utilisation. Moreover, if the smuggling doesn't stop, it would raise question on the viability of these projects, forcing prospective investors to review their decisions.

Due to the use of smuggled products from Iran, oil marketing companies (OMCs) like PSO and Shell are also facing low consumption of their imported POL products. This is leading to a huge loss of $35.6 million a month, including damage in revenue to the government.

Additionally, the government is also losing revenue from petroleum levy, customs duty, corporate tax and super tax.

The issue can also jeopardise opportunity of the forthcoming huge investment in refineries expansion upgradation projects under the Oil Refining Policy for Upgradation of Brownfield Refineries, 2023 (As amended in February 2024).

Attock Refinery, National Refinery and Pakistan Refinery have consented to signing the upgradation agreements with Ogra while PARCO and Cnergyico are also expected to join. This would take the total investment to $5-6 billion.

The Refining Policy, which took four years in the making, with its final approval in February 2024, has presented a golden opportunity not only to bring in huge investment but also substantially increase production of deficit products and meet environment-friendly Euro-V specifications.

It would, therefore, be most unfortunate if the planned upgradation projects are delayed or abandoned due to continued illicit activity, which is already bleeding the economy, and has disrupted the entire supply chain of petroleum products, adversely affecting the refinery health, White Oil Pipeline operations and the profitability of Oil Marketing Companies and dealers. 

The letter also mentioned that this issue has been taken up at various forums but unfortunately, no concerted effort has been undertaken to stop this menace. The OCAC also wrote a letter to SIFC as the one-window investment facilitation institution for unwavering support to aggressively combat and dismantle the smuggling networks, reclaim control of the market and restore the momentum of struggling oil industry. It said failure to promptly address this issue will have catastrophic consequences for the energy security and economic stability of the country.

The OCAC also wrote a letter to secretary petroleum on March 25, however, no action has been taken against the rise in smuggled POL products since.