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Commission on petrol shortage finds grave oversights by Oil and Gas Regulatory Authority

The five-member bench on petrol shortage in the country in June this year has found grave oversights from OGRA and criminal hoarding by OMCs

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In June this year, the five-member Inquiry Commission to investigate the sudden petrol shortage in the country in June has revealed their findings. Additional DG FIA Abubakar Khudabaksh was heading the Inquiry Commission.

The Commission’s findings allege that a total lack of cooperation between departments under the Petroleum Division during the time was one of the topmost reasons for the shortage of petrol.

The Oil Marketing Companies (OMCs) the report alleges halted their supply of petrol to petrol-pumps despite having ample amounts of the resource in their stocks.

The report also recommends punitive measures against the secretary Petroleum Division, DG Oil, OGRA, and private oil marketing companies (OMCs) and presented them to Prime Minister Imran Khan. The report on the petrol shortage was also expected to be presented to the federal cabinet today.

OMCs to blame

The reports reveal that OMCs profited by hoarding petrol and made around Rs. 6 billion to Rs. 8 billion in the process. Between June 1 and 26, the report says that the OMCs, “OMCs committed every illegality in business as usual manner.”

The report explained that the prices of petrol had dropped significantly by May 31, so instead of incurring losses as per fair market rules, the companies let the supplies dry out slowly, against all legal and moral norms plunging the country into a petrol shortage.

OGRA, the Oil and Gas Regulatory Authority, is an agency of the Government of Pakistan responsible for regulating Pakistan’s oil and gas sector. It was established in 2002.

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The report continued to cite the various failure of OGRA since 2002, including the issuance of licenses to OMCs without proper evaluation of actual storage facilities, failing to ensure minimum stock requirements, imposing ritual fines on OMCs, issuance of unlawful provisional marketing licenses to OMCs, lack of any punitive action on illegal joint ventures or joint workings between OMCs, as well as being unable to put any mechanism for keeping any checks on operations of unlawful private storage companies.

 “Such proliferation of licenses has upped the scale of malpractices including smuggling and adulteration,” the Inquiry Commission further said and strongly recommended the dissolution of OGRA through an act of parliament within the next six months.

 OMCs were found hoarding stocks

The report said that “All OMCs (other than the Pakistan State Oil and Shell) proportionally held on to their stocks with knowledge of anticipated rise in prices. This has been proven during a ground check of filling stations and records submitted by the OMCs with affidavits”.

OMCs falsely showed sales on paper during this time, but ground checking of the filling stations showed that OMCs were short on supply.

The report added, “It is clear that all OMCs had a fairly good idea of a price increase of at least Rs. 20 per liter and thus illegally hoarded their stocks during the crisis, stripping the public at large of billions of rupees.”

PSO’s market share increased by approximately 48 percent in June because it didn’t get involved in the same illegal practices, leading to a loss of approximately Rs. 8 billion. Inadvertently the companies helped their competitors.

“Likewise, to some extent, Shell also tried to keep pace with the situation and fared much better than other OMCs. Shell also posted a loss of more than Rs. 8 billion in the first two quarters of 2020.”

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The report also held the Ministry of Petroleum and the Director General (DG) oil responsible for complete failure in holding accountable the companies operating under the ministry and failing to ensure an uninterrupted supply of the fuel in the country.

“During the crisis, the Oil and Gas Regulatory Authority (OGRA) being the regulatory body remained as apathetic to the situation as a non-functional entity could be… OGRA did issue show-cause notices to 9 OMCs and fined them a total of Rs. 50 million. However, the show-cause notices were devoid of any authentic/quantified detail and seemed more of a ritual used as a defense on the part of OGRA.”

The report also revealed that the 9 companies paid an insignificant sum of Rs. 25 million – 45 percent of the total fine imposed and subsequently entered into review against the penalty.

The report also highlighted the appointment of Dr. Shafi-ur-Rehman Afridi despite having no previous experience of working in the oil sector.

“The posting of the incumbent and previous DGs Oil has also been found against the approved criteria/rules. The current DG-Oil Dr. Shafi-ur-Rehman Afridi is a grade-20 officer of the Office Management Group (OMG) and with no previous experience related to the post of DG Oil. This fact reflects gross violation on the part of MoEPD and its non-seriousness to attend to the issues and functioning of the office of the DG Oil that plays a pivotal role in the oil/petroleum industry of Pakistan.”

The report also brought to light oil smuggling through the Taftan border with government agencies’ apparent involvement. Reportedly, Rs. 240 billion worth of oil is smuggled into the country. The inquiry revealed that this huge quantity is brought in 50,000 liters tankers via roads from Iran.

The border check-posts are primarily manned by Frontier Corps (South) assisted by Pakistan Customs. “It is not possible that these huge tankers can cross the Iran border on any other route on the bare-backs of mules or humans. On condition of non-attribution, sources revealed that the smuggling is carried out in connivance with the government agencies.”

ORGA’s failure led to petrol shortage

A commission of inquiry formed in July this year to probe into a sudden shortage of petrol in the country lamented OGRA’s performance regarding its duties in the oil and gas industry.

This was revealed in a report of the Federal Investigation Agency (FIA) led inquiry panel.

The commission has submitted its report to Prime Minister Imran Khan, who has asked the relevant officials to present it before the federal cabinet in its meeting to be held today.

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The list of failures of OGRA since 2002 includes: dishing out licenses (25 in the last 14 years while 32 waits for inline) to OMCs without ensuring actual enhancement of storage facilities, zero inspections of relative adherence to minimum stock requirements by OMCs, the imposition of ritual fines on OMCs for drying out their retail outlets during June 2020, issuance of unlawful marketing licenses to OMCs, no punitive action on legal joint ventures or hospitalities between OMCs, no revocation or suspension of the license of even a single delinquent OMC, no mechanism to ensure lifting of the local quota of petroleum products by OMCs, and no checks on operations of unlawful private storage companies.

The report stated that such proliferation of licenses had exaggerated the malpractices in the industry, including smuggling and adulteration. 

GVS News Desk