Pakistan: oil supply chain in a shambles

ISLAMABAD: About 45 days after the severe petrol shortage, the furnace oil supply chain is in a shambles owing to problems arising out of sloppy strategic planning, non-payments and adverse weather conditions in the Middle East.

“We have no live furnace oil stocks right now,” said an official of Pakistan State Oil, adding that the next shipment was expected this weekend.

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He said the PSO’s receivables from the power sector that had been brought down to Rs182 billion after payment of Rs40bn arranged by the federal government to ease the petrol crisis in January remained unchanged. The power sector kept clearing weekly invoices to the PSO for about 17,000 tons per day of fuel supply without any progress on the backlog to enable flexible furnace oil imports.

“We have no live furnace oil stocks right now,” says an official of PSO

A senior official of the ministry for water and power, however, said the problem in furnace oil chain had emerged because of lack of strategic planning by the PSO. He said the makeshift leadership in the chain was still taking time to understand the basics of a sound strategy to maintain supplies of critical goods and no sense of urgency appeared to work out some contingency planning.

A petroleum ministry official said the fuel situation was to come under discussion of a cabinet committee on energy a few days ago, but the meeting was postponed due to the prime minister’s visit to Quetta and then some other engagements.

He said PSO’s stocks stood at about 65,000 tons, including more than 10,000 tons of dead stocks, on Friday. On an average, the PSO has been supplying about 17,000 tons a day to the power sector against current payments.

He said loading of a ship at Fujairah last weekend had to be abandoned halfway because of a sandstorm that was reported to have significantly affected sea transport and created congestion. The next ship was expected on March 5.

A spokesman for the power ministry said the PSO was paid Rs20bn in February against supplies of Rs17bn, which meant the power sector had cleared ‘some arrears as well’.

He said power plants had reasonable fuel stocks to maintain the current demand-supply situation for about a week and hydropower generation had improved to 3,500MW from 1,200MW in January.

Insiders said the issue was not only that of one ship coming this week or not but it also related to coming weeks and months in the run-up to the peak summer. They said the acute shortage of furnace oil would hit the power sector in a couple of weeks if urgent measures were not taken because the petroleum ministry was not planning emergency steps to diversify its supply system.

The power ministry claimed that it had paid the PSO Rs65bn more than its bills in December and January. This amounts to four months of furnace oil supplies to all power plants run on PSO supplies.

Any major importer of goods would ensure diversified sources to mitigate risks against any disruption from any single source, but the PSO which was responsible for 90 per cent of oil imports, had planned all its furnace oil imports (about two-thirds of its total business) from one single source of Fujairah port without even following weather forecasts.