Refineries refuse to lower fuel oil prices for power generation

ISLAMABAD: Local refineries have rejected the government’s proposal asking for a rebate on the prices of fuel oil used in power plants on the grounds that lowering fuel oil prices is not a viable proposal.

Refineries are currently operating with lower throughput due to huge fuel oil inventories and they don’t have enough room in warehouses to store other petroleum products. Pakistan Refinery Limited (PRL), National Refinery Limited (NRL), Attock Refinery Limited (ARL) and BYCO rejected the government’s proposal to lower fuel oil prices, calling it an inappropriate solution to the problem. does not address the sustainability of refineries. However, they requested the government to come up with a comprehensive policy for this and immediately approve the Pakistan Refining Policy 2021 without wasting any more time, which will ensure the environmentally friendly production of POL products.

However, the Pak-Arab Refinery (PARCO) responded positively to the government’s proposal and showed its willingness to reduce the price of fuel oil to Rs 83,000 per metric ton for a limited period just to resolve the immediate crisis situation. PARCO currently has a stock of 85,000 metric tons.

On January 6, 2022, the government asked refineries to reduce the prices of heating oil so that the use of the product for electricity generation can be implemented, because the reduced price heating oil will allow the government to equate the order of economic merit. Under the Economic Merit Order (EMO), power plants using the cheapest fuel are commissioned first. And oil-fired power plants come second to last in EMO because oil prices are higher than the price of LNG that is used in LNG-fired power plants. And the cost of fuel is an element passed on to end consumers. Diesel-powered plants produce the most expensive electricity, which is why diesel-powered plants are last in the Order of Economic Merit.

The letter from the General Directorate of Petroleum written on January 7, 2022 to five local refineries available with The News mentions that Energy Minister Hammad Azhar during a meeting held on January 6, 2022 to discuss the fuel position with the power stations. The letter indicates that at this particular meeting, it was decided to ask refineries to reduce their margins on heating oil for its consumption in power plants for electricity, arguing that power plants based on RFO with a rate reduced will come in a better position in EMO and this is how fuel oil utilization can be improved. The Department of Energy also argued that this would facilitate the viability of reduced heating oil prices, corresponding to the order of merit allowing an improvement in FO consumption for a limited period, which would alleviate the current constraints with refineries.

Pakistan Refinery Limited (PRL), in its response to the CEO’s letter on petroleum, said the proposal to lower the price of heating oil was not viable. He said the ex-refinery price of PRL’s heating oil for the first half of January 2022 is Rs 86,000 per ton against the import price of Rs 92,434 per ton and the monthly average FOB crude oil price. benchmark is around 101,000 rupees per tonne. The PRL in a letter to DG Petroleum a copy of which is exclusively available with The News responded, saying the proposal to lower the price of heating oil would further deteriorate the financial situation of the refinery, which would ultimately lead to the suspension of operations.

Similarly, Attack Refinery Limited (ARL) and BYCO also rejected the government’s proposal, saying it was not a financially viable solution. The ARL has asked the government to implement an agreement with the IPPs to hold the fuel stock for 20 days. BYCO claims that the price of crude oil is higher than the price of fuel oil and there is no markup on fuel oil, which is why refineries cannot reduce it further.

Steve R. Hansen