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The Inquiry Commission report on the shortage of petroleum products has strongly recommended the dissolution of the oil and gas regulatory authority (OGRA) through an act of parliament within the next six months.

The Inquiry Commission report on shortage of petroleum products, available with Propakistani revealed that the smuggling of over Rs. 240-250 billion petroleum products are taking place in the country.

The Commission is of the considered opinion that the formation of a regulatory body like OGRA, perhaps in line with modern markets of developed countries, was not aligned with the ground realities of Pakistan. As such, the Inquiry Commission strongly recommends the dissolution of OGRA through an act of parliament within the next 06 months.

“The OGRA has been taken up on top of the list as much of the mess that abounds in the oil industry pertains to OGRA and the related laws/rules”, the report said.

It recommended that the modalities of how the present staff and function of OGRA would be utilized can be made a part of the proposed act. This is a strong recommendation but given the landscape of problems that OGRA has put the oil industry in, no other alternative would be viable.

Strict Penal Action to be Taken Against Those Involved in Illegalities

The Commission recommended strict penal/departmental action against those involved in illegalities, especially in the issuance of unlawful provisional marketing licenses/marketing permissions. This includes the Chairpersons (incumbent and the previous ones) and their associated members (Oil, Gas, Finance) that constitutes the ‘Authority’ under section 3(3) of OGRA Ordinance 2002. To accurately assess the illegality on part of each person is a matter of further investigation/probe.

The Commission also recommended strict action against officials of the Department of Explosives (working under MoEPD) found involved in the issuance of unlawful Forms ‘K’ & ‘L’ to retail outlets and storage depots respectively.

The Commission strongly recommended that all other private OMCs develop this automated transportation system.

In the modern age of digitization, this step would not incorporate much expense. Further, the OMCs may be directed to submit this automated data to the proposed monitoring cell in MoEPD. This would help in process of data verification on a monthly/annual basis. More importantly, this initiative would be the first important step in curbing smuggling.

Quantum of Smugging Through Land

The Inquiry Commission report also stated that the quantum of smuggling through land route has been approximated at Rs. 250 billion. There are 603 illegal retail outlets operating in the country which have neither been regularized by OGRA nor owned by OMCs. These unbridled retail outlets have not been fed with petroleum products from OMCs. Consequently, their only reliance for getting petroleum products is through smuggling or unlawful purchase from black marketers, other OMCs or hoarders.

Unchecked by any regulatory authority, OMC or District Administration, these retail outlets are left with no other choice but to adulterate other hydrocarbon chemicals with MS and HSD or Kerosene with HSD. Given the limited scope and time available to the Commission, an intrusive probe was not possible. Hence, OGRA, MoEPD, OMCs, Department of Explosives, and District Administration concerned must carry out an exhaustive exercise into the operations and subsequent elimination of these illegal retail outlets.

According to the report, Rs. 240 billion is not an amount to be overlooked. The question arises as to how such a huge amount gets across the Taftan Border and further across the country with multiple agencies working to curb this menace. Interestingly, the inquiry by the Commission has revealed that this huge quantity is brought in 50,000 liters tankers on 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 or 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 KPK.

The rate of delivery, however, varies with destination. 16.18 Likewise, the smuggling by sea route must also be of huge volumes. The two aforementioned examples of suspect ships are of the recent past (July 2020). The assessment of loss to the government exchequer and the economic impact through this mode of smuggling is difficult to assess. However, the Commission would strongly recommend a deeper probe with respect to the dubious functioning of BYCO Refinery.

Petrol Crisis

The inquiry commission report uploaded on the Cabinet Division revealed that in May and June 2020 witnessed the apathy of certain culprit OMCs which imported oil but hoarded or slowed down the supply to their retail outlets till the government increased the prices in June 26, 2020. The crisis of shortage erupted in Pakistan in the month of June 2020.

The sad story of how an opportunity was transformed into a crisis starts in March 2020 with the irrational decision of ‘import cancellation’ by the Ministry of Energy and Petroleum Division (MoEPD) spanning over a month whereby the OMCs were asked to cancel their cheap international purchases. Instead of enforcing the OMCs to lift their local quota of purchases from refineries, the MoEPD went for the blanket import ban.

The report noted that the OGRA was never in a position to execute and enforce these rules and constantly shunned away from the very responsibility that had been bestowed upon OGRA through OGRA Ordinance 2002 and Oil Rules 2016.

Having been created in 2002 and given some powers to regulate the oil industry in 2006, it took OGRA a long 14 years to even formulate its rules (Pakistan Oil Rules 2016).

The role of this white elephant was not more than a silent spectator before or during the crisis .of shortage of petroleum products. Catalog of failures of OGRA since 2002 includes dishing out licenses (25 in last 14 years while 32 waits in line) to OMCs without ensuring actual enhancement of storage facilities, zero inspections of relative adherence to minimum stock requirements by OMCs, imposition of ritual fines on OMCs for drying out their retail outlets during the month of June 2020.

The Commission is of the considered opinion that the formation of a regulatory body like OGRA, perhaps in line with modern markets of developed countries, was not aligned with the ground realities of Pakistan. As such, the Inquiry Commission strongly recommends the dissolution of OGRA through an act of parliament within the next 06 months.

The modalities of how the present staff and function of OGRA would be utilized can be made a part of the proposed act. This is a strong recommendation but given the landscape of problems that OGRA has put the oil industry in, no other alternative would be viable.

The Commission recommends strict penal/departmental action against those involved in illegalities, especially in the issuance of unlawful provisional marketing licenses/marketing permissions.

This includes the Chairpersons (incumbent and the previous ones) and their associated members (Oil, Gas, Finance) that constitutes the ‘Authority’ under section 3(3) of OGRA Ordinance 2002.

To accurately assess the illegality on part of each person is a matter of further investigation/probe.
Ministry of Energy, Petroleum Division (MoEPD) has not fared much better during the last decade and in the June crises in particular.

The story of MoEPD is also rife with apathy, incompetence flavored with malpractices, and disregard for laws/rules. However, the Commission recommends that to get out of the present predicament of utter confusion, MoEPD must be empowered to take the matters into its own hands with a consolidated approach. The dire straits of oil industry can only be straightened out with a unified authority.

The Commission strongly recommends departmental/penal action against the incumbent DG Oil for passing flagrantly illegal orders regarding allocation of import/local quotas.

Strong departmental/penal action is also recommended against Imran All Abro and the other associates who had been maneuvering the unlawful affairs in the Petroleum Division.

Imran Abro is reportedly the kingpin in the Petroleum Division and calls the shots on behalf of his superiors. He has been serving in MoEPD for the last 06 years without any legal ground. Under the Rules of Business, a contract employee of a private company (Inter-State Gas Systems (Pvt. Ltd) under MoEPD) cannot serve on deputation/attachment. All such ‘Stand-out-bad-characters’ must not go unpunished.

The role of Secretary MoEPD cannot be ignored. Apparently, he remained encapsulated in a vacuum, both prior to and during the crisis period. The Commission also recommends strict action against officials of the Department of Explosives (working under MoEPD) found involved in the issuance of unlawful forms to retail outlets and storage depots respectively.

Monetary losses forced upon PSO, a state entity, during the days of shortage must be equitably recovered from the OMCs which creamed off the unlawful profits through hoarding, slowing down, or drying out their retail outlets.

The Commission recommends that all such unlawful gains be recovered from OMCs by the federal government as these profits rightfully belonged to the general consumers at large.

Monitoring Cell to be Established

The Commission recommends that a monitoring cell must be established in the MoEPD. The cell should collect all relevant data from OMCs (import, local uplifting, daily/monthly sales of OMCs, refinery import/production program etc.). This cell would record data of every aspect of OMCs just like OCAC. Only this data would have legal sanctity and the OMCs could also be held accountable in case of spurious figures. Presently OCAC has a total staff of 12 persons. This cell may operate twice that number but all data would be directly available to the MoEPD and the government whenever required.

To inspect and examine any premises, facility, or installation owned or operated by an OMC or refinery and to conduct inquiry so as to find any infractions or violations, is the responsibility of the Deputy Commissioner (DC).

The Commission finds them conspicuously absent from the panorama until forced by the acute shortage of petroleum products in the month of June 2020.

The commission also recommended closing of illegal retail outlets, establishing strategic storage, and transportation with a strong recommendation that all other private OMCs develop this automated transportation system. In the modern age of digitization, this step would not incorporate much expense. Further, the OMCs may be directed to submit this automated data to the proposed monitoring cell in MoEPD. This would help in process of data verification on a monthly/annual basis. More importantly, this initiative would be first important step in curbing smuggling as well as an automated gauging system.

The Commission strongly recommends that the GoP may settle the impending debt issues of PSO in due time to enable it to adopt the modern working ways of a vibrant company. The Commission also recommends that PSO maybe 147 Wage directed to take the lead in the aforementioned automation process and complete it within a reasonable time.

Once this is done, MoEPD would be in a better position to dictate other OMCs to follow suit.

Both OGRA and MoEPD had been using an archaic formula of price-fixing, dependent on retrospective purchase prices of PSO. Though acceptable in normal times, it could not withstand the price volatility of the international market.

Price-fixing Formula to be Appraised After 6 Months

During the course of this inquiry, the price-fixing formula has been changed and is made dependent on fortnightly PLATTS rates. The average of 15-days PLATTS rates serves as the base of ex-refinery price. This was a long-awaited correction. The Commission, however, is of the view that this mechanism may be appraised after 06 months and the government may consider the same formula with an average of 30 days instead of 15.

The Commission recommends that in future Product Review Meetings (PRMs), only quotas of local refineries be fixed as per the market shares of the OMCs (or as decided by mutual deliberation of OMCs). The OMCs should only give their import plans and MoEPD should be content with a minimum stock of 20 days by each OMC. Had this practice been in vogue, all OMCs and GOP would have saved millions in foreign exchange through cheap procurement in April and May 2020.

The Commission is compelled to recommend that the Government may consider getting the performance audit done of all such regulatory bodies (NEPRA, PEMRA, DRAP etc.). The people of Pakistan have a right to know whether their hard-earned tax money is being utilized properly, the report added.

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