Illegal oil business thriving as smuggling reaches 120000 metric tons per month

ISLAMABAD  -  While the legal petroleum business in the country has considerably declined by up to 21 percent, the illegal petroleum busi­ness is thriving as smuggling of petro­leum products has reached 120000 met­ric tons per month, costing the national exchequer billions of rupees in taxes, du­ties and petroleum levy annually.

The oil industry continues to lose busi­ness to the illicit trade and simultaneous­ly, the government continues to lose rev­enue from Petroleum Levy, Customs Duty, Corporate Tax, Super Tax, etc, said a letter written by Oil Company Advisory Council (OCAC) that was addressed to Secretary Petroleum Division. “We draw your imme­diate attention to the pressing issue that poses a severe threat to the oil industry, and consequently jeopardizes the stability of government revenue streams. The stag­gering influx of 4,000 MT of smuggled fuel daily into Pakistan as confirmed by the Oil and Gas Regulatory Authority, (OGRA) is bleeding the nation of approximately $35.6 million per month,” said the letter. 

The copy of the letter available with The Nation said that the sales trend of Motor Spirit (MS) and High Speed Diesel (HSD) during the fiscal year 2022-23 starkly re­sembles the figures recorded during the tumultuous period of the COVID-19 pan­demic in FY 2019-20. While the decline in GDP growth rate from 6.11% in FY22 to 0.29% in FY23 may partly explain this downturn; however, unfortunately, the sales of MS and HSD have further plum­meted by approximately 65% during July-February of FY23-24 as compared to the same period during FY 2022-23, cast­ing doubts on the veracity of projected GDP growth rate of +1.7% for FY 24. 

Similarly, the sales figures of MS and HSD in March 2024 exhibit an alarming variance of -12% and -21% respectively, against the forecasts established in the product review meeting for the harvesting season. Such high negative variances sig­nify product glut, lower refinery through­put, choking of WOP and restrained sales volumes, the OCAC letter said. Hence, the illicit trade has disrupted the entire sup­ply chain of petroleum products; adverse­ly affecting the refinery health, White Oil Pipeline operations, and the profitability of Oil Marketing Companies (OMCs). 

The significant price disparity be­tween legitimate and smuggled fuel cou­pled with widespread availability and weak border controls, causing irrepa­rable damage to legitimate businesses. Any hindrance to local POL production necessitates increased imports, resulting in substantial financing costs for OMCs as they operate on razor-thin margins. 

The unchecked proliferation of sub­standard smuggled petroleum products not only drains the government revenue, but also fuels a shadow economy, making it increasingly challenging to monitor and regulate illicit activities. The detrimental effects of substandard smuggled petro­leum products on the environment, ve­hicle engine, and safety standards should not be left unattended anymore. 

The influx of fuel through illicit chan­nels will gravely impact the foreign direct investment required for the upgrade and modernization of refineries under the Brownfield Refinery Policy. The OCAC has recommended the government to imple­ment robust enforcement measures to control the expansion of the illicit sector (border control). It asked the government to conduct well-coordinated, regular na­tionwide crackdowns in collaboration with federal and provincial authorities and declare smuggling a grave crime, cat­egorized as a punishable offense. 

It asked to propose legislation to par­liament, advocating for corporal punish­ment to deter smuggling and safeguard corporations from its detrimental effects. The federal/provincial authorities/chief secretaries must mobilize their teams and intensify efforts to curb cross-border movements, ensuring stringent penalties including imprisonment for offenders. 

OCAC asked to shut down illegal petrol pumps immediately and take punitive action against them and launch compre­hensive anti-smuggling campaigns to raise public awareness and support. “We seek your immediate and unwavering support to aggressively combat and dis­mantle the smuggling networks, reclaim control of the market and restore the momentum of the struggling oil industry. Failure to promptly address this issue will have catastrophic consequences for the energy security and economic stabil­ity of the country,” the letter warned.