Pakistan oil companies threaten to disrupt supplies

Aug 10, 2006 02:00 AM

Oil marketing companies (OMCs) in Pakistan have warned the government of disruption in oil supplies if it delayed payment of Rs 19 bn owed to them as compensation for putting a freeze on oil prices despite rising prices in the international market, senior officials and industry representatives say.
The move is seen by the government as a pressure tactic to pre-empt implementation of a recommendation of the National Accountability Bureau (NAB) that seeks compulsory audit of all claims the government is required to pay to the oil marketing companies and refineries on account of price differential.

The issue emerged some weeks ago when the NAB completed its comprehensive investigations into the oil pricing mechanism of the last years and found serious flaws with the system. NAB has submitted its report to the prime minister and has concluded that it was not proper on behalf of the ministries of petroleum and finance to make payments to the companies without prior audit, officials said.
"TheOMCs have started defaulting on payment to refineries due to reaching their upper borrowing limits and as a result refineries in return may start default on international crude payments, leading to possible curtailing in refinery production which may lead to disruption of the fuel supply chain within the country," said a letter written to the prime minister by the Oil Companies Advisory Committee (OCAC).

"The move is aimed at thwarting the audit recommended by NAB on oil pricing and it is now up to the prime minister to sustain the pressure," an NAB official said. The NAB has also raised questions about non-completion of two enquiries and special audits ordered by the petroleum minister on the subject.
OCAC officials are currently holding meetings with Advisor to Prime Minister on Finance and Energy Dr Salman Shah besides senior officials of the prime minister's secretariat and finance on a regular basis to resolve the issue. They said the non-payment of outstanding amount was putting an extra burden of financial charges and consequently some of the foreign companies had put on hold their investment plans in Pakistan.

The OCAC -- a cartel of oil companies that used to fix oil prices for more than five years under a controversial government decision and pricing mechanism -- sought the prime minister's personal and immediate intervention "for early release of Rs 18.7 bn to avoid any disruption in diesel supplies that could impact the growing economy and citizens of Pakistan".
Following the submission of the NAB report to the prime minister, the ministry of petroleum has declined to make any payment to the oil companies. An official of the OCAC said the secretary petroleum had expressed his complete inability to be of any help for the payment of outstanding dues. However, the ministry of finance was preparing a case for approval from the cabinet to pass on the impact of rising international oil prices to the consumers, owing to its increasing financial burden.

By the end of July 2006, the government owes the oil industry a sum of Rs 18.50 bn which is increasing at a rate of Rs 2.5-3 bn every fortnight as international prices surge and a freeze on domestic prices for the last two-three months.
Diesel with about 9 mm tons of annual consumption is the major product that could disrupt normal life and is commonly known as "killer fuel" because of its higher import cost.

Source: Gulf Times Newspaper
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