The relationship between the government and the oil industry continues to sour, with the government’s recent decision for all Oil Marketing Companies (OMCs) to import EURO-5 fuel met with resistance from the industry.
The two parties were already in disagreement over the pricing mechanisms and maintenance of 20-day stocks, which resulted in catastrophic disruptions in the supply routine.
The OMCs refuse to shift to importing EURO-5 fuel, citing reasons such as $200 million worth of annual foreign exchange loss, inability to make a change of such magnitude on such short notice, and the fact that the fuel prices would shoot up for the consumers by Rs. 7-8 per liter.
The case was also made in the favor of the automakers, stating that they won’t be able to conform to such a major shift of compliance rating either. Given that the current fleet of cars run on EURO-2 fuel, a sudden shift to EURO-5 wouldn’t suit the car engines.
On 8th of July 2020, the Directorate General of Oil of the Petroleum Division instructed the Oil & Gas Regulatory Authority (OGRA), Hydrocarbon Development Institute of Pakistan (HDIP) and oil industry to mandate the specification of all three grades (RON 92, 95 & 97) of EURO-5 petrol.
Reportedly, in response to these instructions, Oil Companies Advisory Council (OCAC) issued a letter addressed to Petroleum Division, arguing that managing distribution of main grade (RON 92) fuel with EURO-II and EURO-V compliance would be impractical for the OMCs even in main markets. Plus, the cost implications of this shift are too dire, with little environmental benefits, since the government’s goals can only be met if local distribution and supply also conform to EURO-5.
Furthermore, the letter insists that a step by step approach, as discussed in prior meetings, should be taken to bring about natural progress, as previously observed in other countries. At this stage EURO-4 compliance should be sought by the government, allowing OMCs to create a supply chain that would cater to the forthcoming changes, allowing automakers to adapt to the new type of fuel and for the on-road vehicles to adjust to the shift and for the customers to not be taken by surprise by the sudden price hike.