Pakistan refineries have raised concerns over the Pakistan government's new motor fuel pricing policy, citing that insufficient consultations were conducted between both the refineries and the government to ensure a smooth domestic transition toward cleaner sulfur fuels, according to a letter seen by S&P Global Platts.
In a letter dated Aug. 27, signed jointly by Pakistan's five domestic refineries -- Attock Refinery, Pak Arab Refinery, National Refinery, Pakistan Refinery and Byco Petroleum -- addressed to the Ministry of Energy (Petroleum Division), or ME(PD), the refiners requested for the Ministry to conduct a "urgent" multi-agency meeting to work out "meaningful pricing parameters for Euro 5 [gasoline and gasoil]."
The meeting will also seek to address pricing concerns from the country's refiners, who noted "serious anomalies" in recent policy parameters that "need to be rectified," according to the letter
The meeting would involve the ME(PD), refiners as well as other industry participants such as the Oil Companies Advisory Council, or OCAC, and Oil and Gas Regulatory Authority.
POLICY CONCERNS
One of the concerns raised in the letter by the refineries argues against the use of a discount factor between Euro 2 and Euro 5 gasoline.
In a policy guideline dated Aug. 18, a discount factor of 47.896% on Euro 5 gasoline premium will be used to calculate the premium for Euro 2 RON 92 gasoline.
The discount factor was "derived though a variance of last two years premium of Euro 2 and Euro 5 of gasoil (High speed diesel)," according the Aug. 18 guidelines.
"Using HSD Sulphur premium for working out penalty/discount factor for PMG [premium motor gasoline] below Euro V is neither reasonable nor justified", the refineries letter said, adding that "product in the regional markets are specific to that particular product only thus principally and mathematically it cannot be applied on other products."
In addition to the gasoline discount factor, Pakistan refineries have also sought the government's review of policies that penalize refiners not producing low sulfur fuels.
"[If] an individual refinery is producing Euro II PMG product but the sulfur contents are up to 10 ppm or less Sulphur, then [a] sulfur penalty should not be applicable, as it is meeting the Euro V specification requirement in terms of sulfur," said the Aug. 27 letter.
"There is absolutely no logic for imposing second penalty on MS [motor spirit] 91 [RON] or below, as refineries not producing 92 RON are already paying RON penalty as per existing mechanism and it would be highly unfair to penalize them twice," added the letter.
LOW SULFUR TRANSITION
The Aug. 27 letter is the second such appeal to the ME (PD) from a non-government body this year, seeking a review of the government's plan in adopting cleaner motor fuels.
"A phased approach should be adopted by first introducing Euro 4 specification, as witnessed in other countries, allowing to develop robust and reliable supply chain, preventing price shock to the consumer, better analysis of incremental environmental benefits, adjustment of prevailing vehicle population to the new specification and allowing refineries to upgrade through capital investments," a letter from the OCAC said Aug. 12.
"It (specification change) would have a huge impact on storage and logistics of OMCs at terminal/depot and retail outlet level, which needs to be closely considered for uninterrupted supply and smooth operation of distribution network," according to the letter.
Notwithstanding the aforementioned concerns, state-run Pakistan State Oil has begun to import Euro 5 grade gasoline from mid-August onwards, according to market sources.
"It is quite unclear what is going to happen to Pakistan refiners. Many of their refineries need to do major upgrading works to modernize their facilities," one Singapore-based gasoline source said.
Aside from needing to upgrade, consistently poor refining margins have also taken its toll on Pakistan's refineries, adding to the many challenges refiners need to face amid the country's low sulfur transition.
"The business environment of the country [Pakistan] during the last few years has remained very challenging and disturbing for Oil Refining Sector in Pakistan and has attributed enormously to the financial difficulties of the refineries thus putting survival of the entire Pakistan's Refining Industry at stake," the Aug. 27 letter said.
