ISLAMABAD: The government is likely to re-open Kohat oil depot under the Inland Freight Equalization Margin (IFEM) mechanism and to be declared as Virtual Depot for all OMCs with licences to operate in the area to pass-on the cost benefit to POL consumers, well-informed sources told Business Recorder.

Sharing the details, sources said, at present, petroleum products' requirement in the country is about 18 million tons per annum. This requirement is met through a supply/logistics chain comprising various oil depots scattered throughout the country. Till 2008 Oil Marketing Companies (OMCs) were maintaining 29 depot locations (including an oil depot at Kohat), where consumer prices were equalized under Inland Freight Equalization Margin (IFEM) mechanism. The transportation cost from source i.e., local refineries/ports to these depots was maintained through IFEM.

However, the number of IFEM-based depots was reduced to 12 from 29 in July 2008 to discourage dumping and misuse of IFEM. Subsequently, Oil and Gas Regulatory Authority (OGRA) introduced physical reporting system at these locations to curb dumping. In view of severe shortages witnessed in Central/Southern Punjab during 2010 floods, four depots were restored. Later, keeping in view the reduced availability of gas to CNG stations and increased demand for petrol in the country, six more depot locations were restored in 2014 with the approval of the ECC.

Recently, the Senate Standing Committee on Petroleum had a briefing from PSO in its meeting held on September 4, 2020 about closure of the depot in Kohat and directed PSO and OGRA to look into the issue and make it operational if it is viable for the Company.

Presently, retail outlets in Kohat Division are fed through Tarujabba depot located in Peshawar. The situation has aggravated after complete ban in February 2017 by authorities on oil tanker movement through the Kohat tunnel. Consequently, tankers have to travel through the only alternate route (Kohat Kotal Pass), which is hazardous for heavy transport carrying flammable cargo. Therefore, dealers face safety and security issues as the loaded lorries pass through sensitive areas of Matni, Darra Adam Khel and Kohat Kotal Pass. This route also remains closed between 6 pm and 6 am which causes a delay of one day for supplies to the retail outlets in Kohat Division.

In compliance with the direction of the Senate Standing Committee Petroleum, PSO has examined the case and concluded that re-opening of Kohat depot will not affect PSO’s noted cost nor the industry's IFEM. Re-opening of the depot will add approximately 2000 liters to the country’s storage capacity. In order to facilitate the dealer and cartage contractor community of the area, the depot can be made ready for handling of petroleum products within 6 months with an expected restoration cost of around Rs 3 million.

OGRA has also endorsed PSO’s working regarding the comparison of its noted cost with inclusion of Kohat depot in the IFEM mechanism, which will reduce the freight cost by Rs 0.01 per liter amounting to Rs 5 million estimated saving each month. The freight saving is the reduced distance of about 150 kilometers on Return Trip Distance (RTD) basis, as the product would then be moved from Mehmood Kot to Kohat rather than Tarujabba. OGRA has also suggested that the location - PSO Kohat Oil Depot - may be declared as Virtual Depot for all OMCs with licences to operate in the area to pass-on the cost benefit to POL consumers.

Ministry of Energy (Petroleum Division) has proposed that the Kohat depot may be re-opened under the IFEM mechanism and the depot may be declared as Virtual Depot for all OMCs with licences to operate in the area to pass-on the cost benefit to POL consumers. However, being the regulator, OGRA should strictly monitor their physical reporting system and also encourage the OMCs to develop their physical storage infrastructure at Kohat.