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Pakistan's oil imports from India unlikely
Khaleeq Kiani
Dawn
Publication Date : 06-06-2012
Pakistan's politically ambitious plan for oil imports from India seems to have fizzled out, at least in the medium term, owing mainly to quality concerns, prevailing contractual obligations, lack of infrastructure and above all bilateral trade hiccups and security issues.
Even though, the technical teams of India and Pakistan are likely to meet again early next month in Delhi, it would just be another round of simple consultations without signs of possible imports of major products – furnace oil and high speed diesel.
”The only possibility of bilateral trade between the two neighbours in the oil sector could be limited to insignificant motor gasoline (petrol) that too through international spot bidding”, a source familiar with ongoing negotiations between the two countries told Dawn and showing ‘record notes’ to prove that oil import from India was still a pre-mature initiative.
And despite some media reports that the two sides were also discussing construction of a pipeline by India for oil export and exchange of a whole range of petroleum products, the recent bilateral talks discussed only three products – furnace oil, high speed diesel and motor gasoline.
While a lot of work would be required on standards, specifications, infrastructure, banking, visas, warehousing and pricing on the sidelines of South Asia Preferential Trade Arrangement (SAPTA), it was very much clear from two rounds of talks between oil and gas experts that the trade of furnace oil and HSD could not materialise until 2014 – perhaps never in the case of furnace oil.
In initial general discussions, the Indian side had indicated that they could provide a range of petroleum products like furnace oil, HSD and petrol besides related other products like pet coke, sulphur, lubricants and bitumen and make quality adjustments.
In formal talks, however, they confirmed that major parameters of furnace oil specifications of Pakistan were different from Indian products and hence ‘technical constraint’ in view of high vanadium and conradson carbon content.
The Indian side requested waiver in specifications that was simply not acceptable to Pakistan.
“We told them that waiver was simply out of question because quality has to be adhered to because Islamabad had binding contracts with independent power producers (IPPs). India would revert back if it could make adjustments in specifications."
There were also some security issues on furnace oil and hence no breakthrough on this products that Pakistan imports to the extent of 6 million tons a year including 1 million tons through long-term contracts.
On HSD, officials said Pakistan had long term contract with Kuwait Petroleum Company until December 2014.
Given Pakistan State Oil’s contract with KPC and Parco’s pipeline capacity utilisation from Karachi to Multan, the requirement for its import from India was also limited. Pakistan imports about 4 million tons of HSD including 75 per cent through long term contracts.
Indian companies could participate in international bidding subject to terms and conditions of the tender documents.
On Petrol (motor gasoline), Pakistan imports only an insignificant quantity of 1.5 million tons per annum and this import is done purely by the oil marketing companies on commercial basis in which Indian companies could also participate.
However, given the fact that a large refinery of Byco was currently in advanced stage of completion, the need for petrol imports would substantially reduce because a number of other existing refineries were also upgrading themselves through isomerisation plants.
Nevertheless, Pakistan has indicated to consider petrol imports if India offered concession on pricing and provided international guarantees. The Indian side, however, said the pricing should be based on international import parity depending on quality adjustment, import duties and other related costs.
On top of these technicalities and legalities, some procedural and regulatory issues would also be examined in the subsequent meetings before operationalisation of formal trade in petroleum products.
Informed sources said that as part of wide ranging bilateral talks, the two sides would have to enhance banking services to facilitate business through letters of credit and put in place an online system of SAPTA certificate recognition.
The two sides have also to put in place a direct routing of postal and couriers services, multi-city and multi-entry non-reporting visas for business people and warehousing and tankage and infrastructure facilities like crane and fork lifters at Wagah border.