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.

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.

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.

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.