ISLAMABAD – Objecting to the government decision of switching to EURO V Gasoline specification, the Oil Company Advisory Committee (OCAC) has said that it will increase the country’s oil bill by Rs 25-33 billion per annum and fuel cost by up to Rs 7 per litre.
In a letter to the federal government, the OCAC has said that currently Pakistan imports around 500,000 MT per month which is about 70-80% of the total demand. It mainly originates from Arab Gulf/Regional refiners /blenders. With the proposed end point (FBP) of 205 C and Sulphur content of 10 ppm, more than 50% of this quantity cannot be supplied from current sources and the shortfall will have to be sourced from Europe.
This could result in higher freight costs of minimum $3-$4/bbl, similarly the product price is estimated to be around $2-3 /bbl higher than current Mogas price, it said.
This approximately means a cumulative increase of Rs 5 to 7 per litre to the Consumer while it translates into an additional cost to the Country to the tune of $ 150 to 200 million per annum or Rs 25-33 billion per annum.
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It was discussed that a phased approach should be adopted by first introducing EURO IV specification as witnessed in other countries allowing to develop robust and reliable supply chain, preventing price shock to consumer, better analysis of incremental environmental benefits, adjustment of prevailing vehicle population to the new specification and allowing local refineries to upgrade through capital investments.
Currently there are challenges of availability of the product which will require 3 to 6 months’ time for preparing and putting supply arrangements in place for new import specification of EURO V. However, in case of P80, it clarified that at least 60 days prior notice is required to arrange product as per its procurement cycle.
As the industry understands, this new product specification being introduced for imports would be over and above the current specification of Mogas 92/95/97 RON being produced by local refineries. As such, it would have huge impact on storage and logistics of OMCs at Terminal/ Depot and Retail outlets level which needs to be closely considered for uninterrupted supply and smooth operation of distribution network.
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Primary objective of introducing EURO V specification is to control the vehicle exhaust emission. If this is so then two factors need to be closely evaluated; Fuel Specification and Vehicle Specification condition in Pakistan.
Notwithstanding, the general objectives of reducing SOx in the air may partially be achieved through proposed transition from EURO ll (500 ppm) to EURO V (10 ppm).
All stakeholders especially vehicle manufacturers (PAMA/OEMs) must be taken on board regarding this change in specification and the compatibility of proposed specifications should be checked in advance as industry faced issues on the previous change in specification of Mogas which was detrimental to the reputation of the Industry, the letter said.
Since specification of Mogas from local refineries are not expected to change shortly, retail network and inland storage infrastructure of Mogas will be comingled with local refineiy product and the emission control/environmental objectives could only be partially achieved.
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It would not be practically possible for OMCs to manage their Distribution, Retail network to separate the main grade RON 92 in terms of EURO II and EURO V even in major cities.
Higher price without any significant environmental benefits would be self-defeating till such time when imported and local
Higher price without any significant environmental benefits would be self-defeating till such time when imported and local supplies are of the same specification.
In the current pricing mechanism (M-1), the cut over month must be carefully managed as it will create an exposure for the importing OMCs; they will be importing expensive product and will be selling at last month prices calculated on a different specification and cost of product. It will require “in-month’ changes and pricing adjustment mechanism to account for the cost difference due to change in product specification.
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Article source: https://nation.com.pk/09-Jul-2020/ocac-objects-to-govt-decision-of-switching-to-euro-v-gasoline-specification