PSO seeks authorization to import POL products
MUSHTAQ GHUMMAN
ISLAMABAD: Pakistan State Oil (PSO) has reportedly sought federal government’s authorization to import petroleum products on C&F basis, arguing that experience of business with Pakistan National Shipping Corporation (PNSC) is unsatisfactory, sources close to Secretary Petroleum told Business Recorder.
The Ministry of Finance and Ministry of Planning, Development and Reforms have joined hands in favour of national importer. However, Ministry of Planning maintains that the import of Premier Motor Gasoline (PMG) and furnace oil on C&F basis must be through a competitive bidding as per PPRA rules.
In 2012, the then ECC approved a summary submitted by the Ministry of Ports and Shipping meant to strengthen the PNSC and make it a vibrant national carrier. Ports and Shipping Ministry submitted the following proposals: (i) reinforce the recommendations of the Kazi committee with full force; (ii) all contracts and agreements should be Freight on Board (FoB) with PSNC nominated as a carrier; (iii) PNSC should act as shipping agency for Ministries, autonomous and semi-autonomous departments of the government; and (iv) organisations like PSO, TCP, PSM should have long-term contract of affreightment on a market base formula as is being done successfully with the refineries.
However, the ECC made it mandatory that whenever PNSC will have no carrier of its own, it shall issue an NOC to the prospective importer of cargo.
Accordingly, a Contract of Affreightment (CoA) was signed between PSO and PNSC during 2012 followed by an Addendum of January 8, 2013 for transportation of Premier Motor Gasoline (PMG) and Furnace Oil (FO) on FOB basis. Prior to the COA, the import of furnace oil used to be arranged by PSO on C&F basis through floating of competitive international tenders from spot market.
However, PSO’s experience with PNSC has proved unsatisfactory. Due to inadequate fleet and fewer self-owned vessels, PNSC charters vessels from other shipping companies for transportation of POL products which is a clear violation of the guidelines given by the ECC.
This leads to frequent disturbances and operational issues in supply chain owing to delayed reporting of PNSC vessels at loading port and subsequent delayed arrival at the discharge port, i.e., Karachi.
The sources said, a major reason for the PMG crisis in the country that occurred in January 2015 was late arrival of two PNSC tankers despite timely establishment of Letters of Credit. Consequently, one vessel was loaded on January 12, 2015; actually, its original arrival window at Karachi was 6-8 January, 2015 and it arrived on January 15, 2015, a delay of 7 days. Another vessel was supposed to reach load port on January 15, 2015, a delay of 10 days, and reached Karachi on January 28, 2015 instead of January 16, a delay of 12 days.
PSO has revealed that a similar situation might again develop leading to fuel shortages in future also. Therefore, PSO has proposed that matter should be raised at ECC level for providing PSO the provision to switch import of PMG and FO to C&F basis.
Under International Commercial Term (INCOTERM), FoB has higher risks for the buyer as the title (ownership) and risk of the cargo transfers to the buyer at the time of the discharge at destination port.
According to the Ministry of Petroleum and Natural Resources, PNSC is in litigation against PSO on the issue of delayed vessels/ demurrage. The Senate Standing Committee on Petroleum and Natural Resources during a meeting held on November 6, 2014 has recommended that Petroleum Ministry should revive the policy of oil import on C&F basis in order to avoid further litigation on this issue.
Keeping in view the problems being faced due to frequent delays by PNSC vessels and increased risks involved in the contract under FoB arrangements, Ministry of Petroleum and Natural Resources has proposed that PSNC may be directed to implement a necessary condition imposed by ECC, i.e., “whenever PNSC will have no carrier of its own, it shall issue an NOC to the prospective import of cargo”. Accordingly, PSO may be allowed to proceed for import of PMG and FO on C&F basis through an open bidding process over and above PNSC owned vessels in order to ensure consistent and smooth supplies of petroleum products.
Petroleum Ministry argues that business support to PNSC is a national cause, however, sustained supply of POL products to the country cannot be compromised at any cost.
Recently, PSO supply chain was again exposed to late provisioning of vessels by PNSC for petrol. As PNSC’s vessel “Red Eagle” which should have been made available during the loading laycan on April 8-10, 2015 at Singapore, reached there on April 13, 2015 resulting in a four-day delay in arrival on April 27, 2015. Furthermore, PSO is also continuously exposed to cargo quality failure risks, e.g., at present one LSFO vessel MT Quetta, transported by PNSC is declared off-specs by HDIP.
PNSC has four vessels of its own and chartering the vessels from market normally delays the shipment which cannot be afforded under the circumstances. Therefore, PSO may be allowed to import the petroleum products on C&F basis after utilizing the PNSC-owned vessels.
