Refineries Threaten Shut Down as Losses Mount

Oil refineries have warned that they will shut down plants unless a new refinery policy is implemented in the country.

Smuggled Iranian oil has reduced demand for locally produced petroleum products, and oil marketing companies (OMCs) are hesitant to replenish refinery stocks due to heavy losses from furnace oil exports, reported Express Tribune.

Due to low demand, refineries are operating at or near capacity and have even begun exporting fuel oil at a significant loss in order to keep the plants operational.

Refineries have also raised the issue of smuggled petroleum products with the federal government, but no resolution has been reached.

While refineries are already running below capacity, OMCs are refusing to lift fuel stocks. Pak Arab Refinery Limited (PARCO) and Pakistan Refinery Limited (PRL) have begun exporting fuel and furnace oil in a desperate attempt to continue operations, but are incurring losses of Rs. 30,000 per ton.

PARCO and PRL have already exported 150,000 tons and 50,000 tons and are planning to ship 50,000 tons and 15,000 tons more, respectively. Refineries were able to keep it all together when margins were relatively higher, but profits are at the brink of turning negative with current low margins and their only hope is a new refinery policy that incentivizes plant upgrades.

Cabinet Committee on Energy (CCOE) discussed a draft policy in its recent meeting and approved incentives for setting up new refineries, but it formed a committee to assess the duty collection and spending and sought details of diesel and petrol production while the refineries are also invited to the committee meeting.

Refineries have made it clear that legal businesses are turning unfeasible in the wake of a massive drop in sales and a huge influx of cheaper Iranian crude through informal channels. Committee was briefed that CCOE had resolved the deemed duty collection and spending with the previous government.

Deemed Duty (tariff protection) was aimed to enable refineries to self-sustain by upgrading and offsetting losses. A 10 percent tariff protection for diesel and 6 percent for JP-4 kerosene oil and light diesel oil was introduced to abolish the guaranteed return formula (10-40 percent) in 2002. Refineries collected 200 billion in deemed duty which they invested in upgrades.

Source: Pro Pakistani