ISLAMABAD: The government is gearing up to launch a crackdown on supply of smuggled Iranian diesel oil that has flooded local markets and posed a threat to the survival of Pakistan’s oil industry.
Earlier, local refineries had warned of shutting down their plants due to the smuggled Iranian oil, which was also causing a revenue loss of around Rs10 billion per month to the national exchequer on account of tax evasion.
The Ministry of Interior, Federal Board of Revenue (FBR) and Petroleum Division have joined hands to tackle the threat posed by the smuggled oil, which is fast replacing the locally produced fuel.
Oil refineries, especially Pak Arab Refinery Limited (Parco), had taken up the matter with the state minister for petroleum. Parco said it was forced to reduce oil refining to 75% of capacity owing to demand and supply issues in the market.
Oil marketing companies (OMCs) have also refused to lift petroleum stocks from Parco and other refineries as consumer demand for local products went down.
The Petroleum Division, in a letter written to the interior ministry and the FBR, has sought action against the supply of smuggled oil.
Separately, the interior ministry has sent a letter to the FBR chairman, seeking a report on fuel consumption in Pakistan and action against the elements involved in oil smuggling.
Meanwhile, the FBR chairman has directed all the Customs departments concerned to initiate action and submit a report.
In its communication, the Ministry of Petroleum voiced concern that the smuggled diesel was fast replacing local fuel in the market.
Smuggled Iranian Diesel:
Smuggled Iranian diesel is largely meeting consumer needs in the current crop harvesting season as demand for diesel from formal sources, ie OMCs, has plunged massively, the ministry said.
It pointed out that the Oil and Gas Regulatory Authority (Ogra) verified reports that legal sales of OMCs had dropped significantly.
Last year, average diesel consumption from March to June remain in the range of 23,000-30,000 tons per day.
However, from mid-February 2023, average sales started to decline and remained around 12,770 tons per day in March.
As informed by Ogra, “diesel sales have declined more than 40% as compared to last year owing to the entry of cross-border product”.
The Petroleum Division added that smuggling had badly affected the formal oil business in Balochistan as well as other parts of the country for a long time due to a huge price gap.
According to data given by Ogra, cross-border smuggling volumes have reached approximately 4,000 tons per day, which ultimately results in a loss of about 120,000 tons (143 million litres) per month in legal sales.
This loss translates into lesser imports by a similar amount and a loss in customs duty. Because of the decrease in sales, total revenue loss in terms of petroleum levy, customs duty, etc is estimated at around Rs10.2 billion per month.
Apart from that, smuggling has led to a significant drop in lifting of petroleum products from local refineries, forcing them to reduce production, which “leads to supply insecurity for products other than diesel”.
At present, oil refinery are operating in the range of 50-70% of their production capacity. They are carrying diesel stocks of around 675,000 tons, which can meet about 44 days of demand.
The Petroleum Division stated that the Ministry of Interior/law enforcement agencies, along with the FBR/Customs authorities and the provincial government of Balochistan, have jurisdiction over anti-smuggling enforcement.
The Petroleum Division requested that these entities take appropriate and strict action to combat the issue of oil smuggling in the Iranian border regions.
Published in The Logical Baat, May 9th, 2023.