Islamabad, Mar 6: Pakistan is considering various measures, including weekly petroleum price revision, compensating oil companies and mandatory work from home, to “keep markets liquid” amid the disruption of trade following the closure of the Strait of Hormuz, a media report said on Thursday.
A summary is being submitted to the Federal Cabinet’s Economic Coordination Committee (ECC) in this regard for action without delay as petroleum prices appeared to surge, the Dawn newspaper reported citing sources.
However, even before the ECC takes these decisions, the state-run Pakistan State Oil (PSO), after the government’s approval, has launched two import tenders each for petrol and diesel outside the Strait of Hormuz as a precaution.
The Strait of Hormuz, a narrow waterway, connects the Persian Gulf to the Gulf of Oman, through which about a fifth of the world’s oil passes.
The Strait was effectively closed following several attacks on ships by Iran in retaliation to joint US, Israel strikes.
Both petrol and diesel have over 500,000 tonnes of stocks, enough for 26 and 25 days’ cover, the Dawn reported.
Meanwhile, Saudi Arabia has already been requested to provide oil supplies through an alternative Red Sea route, it said.
According to officials, the government had directed all provincial chief secretaries to attend the meeting of the newly-created 18-member cabinet committee to monitor petroleum prices scheduled for Thursday.
The meeting will consider mandatory work from home wherever possible for the public and private sectors. The meeting could consider other measures as well, with the coordination of the provinces.
While petrol imports continue to be in the safe zone, diesel imports are not; Pakistan heavily relies on long-term supplies from Kuwait with PSO and all those cargoes have to move through the Strait of Hormuz.
Additionally, more than 20 per cent of global oil cargoes are reportedly stuck inside the Strait, creating a shortage of ships for diesel.
The officials further said insurance costs for oil companies have surged from around USD 30,000 to USD 400,000 per ship, in addition to import premiums for petroleum products.
The current pricing is around USD 3-5 per barrel, the prices at which the PSO had booked cargoes in February but which is no longer the case as fresh orders are placed.
As a result, freight costs have also surged as the ship rate has gone beyond USD 4 million, which was available for no more than USD 900,000 before the crisis, the report said.
The combination of these three factors is exponential and could not be expected of the oil marketing companies (OMCs) and refineries to absorb.
Therefore, a summary to the ECC would provide a mechanism for payment of these additional exigencies to keep OMCs afloat and, in return, maintain their supply chain down to the retail stage.
The fortnightly price revision is also being shifted to a weekly basis immediately to avoid a fiscal bulge on OMCs and the government by recovering the true costs of fuel supplies from consumers on a continuous basis and ensuring smooth supplies as well.
One official said that the price gap has risen to PKR 45-50 for diesel and around PKR 25-26 for petrol in the first week of the crisis and could grow over the next 15 days, and hence needed to be nipped in the bud.
Notwithstanding hue and cry from dealers over limited supplies, the Oil and Gas Regulatory Authority (OGRA) and OMCs have jointly decided to provide petrol and diesel supplies to dealers and retailers on the respective 8-month track record and have stopped unlimited supplies to avoid supply disruptions.
“Still, there was no shortage of petrol or diesel anywhere in the country,” a senior government official said.
In response to dealers’ complaints that OMCs were not honouring product orders, OGRA said that to ensure the uninterrupted availability of petroleum products and to discourage hoarding during periods of extreme price volatility, the companies may temporarily regulate supplies to retail outlets based on their historical sales patterns.
“This measure is a standard supply management practice aimed at maintaining stability in the distribution system,” the authority said.
It reassured the public that the country currently had adequate stocks of petrol and diesel, well within the required limits.
“There is no shortage of petroleum products. Citizens are advised not to pay attention to rumours and to rely only on information issued through official channels,” it said.