9 Petroleum Companies Hoarded Petrol in June and Made Billions: Report

[Morpheus]

9 Petroleum Companies Hoarded Petrol in June and Made Billions: Report

Posted 31 mins ago by Syeda Masooma

The five-member Inquiry Commission headed by Additional DG FIA Abubakar Khudabaksh was formed in July this year to probe into sudden petrol shortage in the country earlier this year in June.
The findings of the commission have revealed that a lack of coordination among the departments working under the Petroleum Division was one of the primary reasons for the shortage. The report, a copy of which is available with ProPakistani, has revealed that Oil Marketing Companies (OMCs) deliberately stopped supplying petroleum products to pumps despite having considerable stocks at their disposal.

The commission has submitted its report to Prime Minister Imran Khan, and will be presented before the federal cabinet on Tuesday (today). The commission has also recommended strict action against the secretary Petroleum Division, DG Oil, OGRA and private oil marketing companies (OMCs).


The report has revealed that OMCs made Rs. 6 billion to Rs. 8 billion during the June oil crisis and emphasized the period between June 1 and 26, in saying that “OMCs committed every illegality in business as usual manner”.


It wrote that the prices of MS [petrol] were substantially cut on May 31 and the new price was set at Rs. 74.52 per liter as a result of internationally plummeting prices. This would have caused OMCs to incur a substantial inventory loss with free sale in June, so they simply let the supplies to dry out slowly, against all legal and moral norms.



Additionally, the report has uncovered numerable other failures of OGRA since 2002, including but not limited to the issuance of licenses to OMCs without proper evaluation of actual storage facilities, failing to ensure minimum stock requirements, imposing ritual fines on OMCs, issuance of unlawful provisional marketing licenses to OMCs, lack of any punitive action on illegal joint ventures or joint workings between OMCs, as well as being unable to put any mechanism for keeping any checks on operations of unlawful private storage companies.


The committee has recommended, “Such proliferation of licenses has upped the scale of malpractices including smuggling and adulteration”. The Inquiry Commission strongly recommended the dissolution of OGRA through an act of parliament within the next six months.


The report writes, “All OMCs (other than the Pakistan State Oil and Shell) proportionally held on to their stocks with knowledge of anticipated rise in prices. This has been proven during a ground check of filling stations and records submitted by the OMCs with affidavits”. However, OMCs did show sales on paper during this time but ground checking of the filling stations showed that OMCs were short on supply.


The report added, “It is clear that all OMCs had a fairly good idea of a price increase of at least Rs. 20 per liter and thus illegally hoarded their stocks during the crisis, stripping the public at large of billions of rupees.”


PSO’s market share increased by approximately 48 percent in June because it didn’t get involved in the same illegal practices, which also led to a loss of approximately Rs. 8 billion. “Likewise, Shell, to some extent, also tried to keep pace with the situation and fared much better than other OMCs. Shell also posted a loss of more than Rs. 8 billion in the first two quarters of 2020.”



The report also held the Ministry of Petroleum and the Director General (DG) oil responsible for failing to keep a check on the companies operating under the ministry and failing to ensure an uninterrupted supply of the fuel.


“During the period of crisis, the Oil and Gas Regulatory Authority (OGRA) being the regulatory body remained as apathetic to the situation as a non-functional entity could be… OGRA did issue show-cause notices to 9 OMCs and fined them a total of Rs. 50 million. However, the show-cause notices were devoid of any authentic/quantified detail and seemed more of a ritual used as a defensive ploy on part of OGRA.”


The report also revealed that the 9 companies very conveniently paid a paltry sum of Rs. 25 million – 45 percent of the total fine imposed – and went into review against the penalty. The report also highlighted the appointment of Dr. Shafi-ur-Rehman Afridi despite having no previous experience of working in the oil sector.


“The posting of the incumbent as well as previous DGs Oil has also been found against the approved criteria/rules. The current DG-Oil Dr. Shafi-ur-Rehman Afridi is a grade-20 officer of the Office Management Group (OMG) and with no previous experience related to the post of DG Oil. This fact reflects gross violation on the part of MoEPD and its non-seriousness to attend to the issues and functioning of the office of the DG Oil that plays a pivotal role in the oil/petroleum industry of Pakistan.”


The report also brought to light oil smuggling through the Taftan border with the apparent connivance of government agencies. Reportedly, Rs. 240 billion worth of oil is smuggled into the country. The inquiry revealed that this huge quantity is brought in 50,000 liters tankers via road from Iran.



The border check-posts are primarily manned by Frontier Corps (South) assisted by Pakistan Customs. “It is not possible that these huge tankers can cross the Iran border on any other route on the bare-backs of mules or humans. On condition of non-attribution, sources revealed that the smuggling is carried out in connivance with the government agencies. Once the smuggled goods are inside Pakistani territory, they are further transported to Sindh, Punjab and the K-P. The rate of delivery, however, varies with destination.”

9 Petroleum Companies Hoarded Petrol in June and Made Billions: Report

The five-member Inquiry Commission headed by Additional DG FIA Abubakar Khudabaksh was formed in July this year to probe into sudden petrol shortage in

propakistani.pk

-----------------

@Patriot forever @Pan-Islamic-Pakistan @Verve @HRK

@Norwegian Remember back in June i said the petrol shortage was artificial created. But resident fuel experts @niaz said that was not the case.

 

[Norwegian]

@Norwegian Remember back in June i said the petrol shortage was artificial created. But resident fuel experts @niaz said that was not the case.

Every crisis in Pakistan is artifically created by internal enemies

 

[niaz]

I had already commented on the reasons for this when it happened and I have little faith in a report conducted by a Gov’t controlled agency. Besides, after the scathing report on the sugar shortage, PTI would ensure that any official report does not put the blame on the decisions by PTI ministers. It is immaterial if you accept my views or not. I would refrain from commenting on the reasons for the shortage and limit my comments on the smuggling of diesel & petrol from Iran.

Let us first define ‘Smuggling’. This term came into fashion during the heydays of Mercantilism which is an economic theory that was developed between the 16th – 18th century whereby the government should be in control of the economy and that the nation’s wealth is based on selling more than it buys”.

All transportation of goods, information, or people across the international border without paying the tariffs and/or bypassing the customs & immigration checks fall into this category. Admittedly, any action that is illegal according to the laws of the country is a criminal offense; nevertheless, smuggling goes on in all countries to a greater or lesser extent primarily because the rewards far outweigh the risks. Additionally, in certain cases, smuggling can also be beneficial to a country’s economy.

The smuggling of Iranian petrol & diesel falls in this category and goes on because there is a shortage in the country. If it was completely stopped, Pakistan would need to import additional quantities to meet the demand which is currently being met by the Iranian produce.

In my opinion, in a country like Pakistan which spends in excess of $10-billion each year on petroleum imports, the benefit of savings in the precious exchange coupled with the saving to the consumer because Iranian petrol & diesel is cheaper than the imported product far outweighs the loss of excise duty by GOP.

This smuggling existed even during the ’60s & ’70s, albeit to a lesser extent because Iranian Tuman was about the same price as Pak Rupee and the international prices of petroleum were low, hence lower incentive. With the US dollar equal to about 25,000 IranianTuman in the open market; the profit incentive is huge. Even if you increase the surveillance ten times, petroleum products smuggling from Iran will continue, it would simply become a bit more expensive for the buyers because extra graft given to the increased number of officials would be passed on to the end consumer.

All oil traders know that Iranian products are being smuggled not only into Pakistan but also to Turkey and to Afghanistan. Just like the wheat smuggled from Pakistan into Afghanistan, Pakistan’s loss is Afghanistan’s gain, the real damage here is also to the Iranian economy because its resource is being sold cheaply.

Finally, I am not advocating that we should encourage an illegal act; but being a ‘Realist’ I am pointing out that cheap Petroleum products being smuggled into Pakistan are not harmful to Pakistan's economy.