Oil industry and authorities are engaging in yet another tussle as government has put a ban on import of petrol and diesel of less than Euro-5 standard with effect from 1st August 2020 and 1st January 2021 respectively. The two sides are already in a conflict on petroleum pricing mechanism and maintenance of 20-day stocks, leading to serious fuel supply shortage in the recent months.
According to Dawn, the oil industry has expressed inability to abide by the fresh instructions, particularly because of such a short notice and has warned of Rs 7-8 per liter price hike and $200 million annual foreign exchange loss. It said the country’s motor vehicle fleet was also not ready for such a steep switchover.
On Wednesday, the Directorate General of Oil of the Petroleum Division notified specifications of Euro-5 petrol of all three grades (RON 92, 95 & 97) and asked the Oil & Gas Regulatory Authority (OGRA), Hydrocarbon Development Institute of Pakistan (HDIP) and oil industry to implement these specifications. As per the notification issued by the DG Oil:
“The process of switching of petrol imports to Euro-5 specifications shall be initiated forthwith and imports of petrol below Euro-5 specification shall not be allowed to any OMC beyond Aug 1, 2020. Likewise all imports of diesel shall conform to Euro-V specifications with effect from Jan 1, 2021”.
Under the new specifications, among other things both products should not contain more than 10ppm (particles per million) from existing level of 50ppm. The government decision, although taken at the highest level, contain a major contrast given local refineries cannot produce products of such standards and parts of the country would continue using existing standards. It would remain a challenge for consumers in many areas whether they were paying the price for actual product of high standard or not.
Moreover, the notification also allowed intermixing of imported and locally produced grade by refineries and OMCs to improve the overall specification of the product at distribution levels. “Alternatively, cleaner products could be used more upcountry to reduce the air pollution in the plains where it is more pronounced” the notification reads.
The oil industry has asked the government to adopt a phased approach by first introducing Euro 4 specification as others countries did allowing development of robust and reliable supply chain, preventing price shock to consumer, better analysis of incremental environmental benefits, adjustment of prevailing vehicle population to the new specification and allowing local refineries to upgrade through capital investments.
It said the industry also currently faced the challenges of product availability which will require 3 to 6 months’ time for preparing and putting supply arrangements in place for new import specification of Euro-5. Even the state-run PSO required at least 60 days prior notice to arrange product. Oil industry believed the move would have huge impact on storage and logistics of OMCs at port, depot and retail outlets level which needs to be closely considered for uninterrupted supply and smooth operation of distribution network.
The oil industry has reported that Pakistan currently met 70-80% of petrol requirement through imports from Arab Gulf, Regional refiners and blenders. With the proposed end point of 205c and sulfur content of 10ppm, more than 50pc of this quantity cannot be supplied from current sources, and the shortfall will have to be sourced from Europe.
As Pakistan has a large number of 2- and 3-wheelers (consuming more than 50% of petrol) as well as very old cars still running, the ultimate objective of bringing down emissions levels significantly would still be a challenge and hence all stakeholders including automobile manufacturers and assemblers should also be taken on board.