ISLAMABAD: The government is preparing to start a crackdown on the supply of illicit Iranian diesel, which has inundated local markets and put Pakistan’s oil sector at risk of extinction.
Local refineries had previously threatened to shut down because of the Iranian oil being smuggled, which was also costing the national exchequer over Rs. 10 billion per month in lost income owing to tax fraud.
In order to combat the threat presented by the smuggled oil, which is quickly displacing the domestically produced gasoline, the Federal Board of Revenue (FBR), the Petroleum Division, and the Ministry of the Interior have joined forces.
Oil refineries have brought up the issue with the state minister for petroleum, particularly Pak Arab Refinery Limited (Parco). Parco said that due to market supply and demand imbalances, it was compelled to limit oil refining to 75% of capacity.
As customer demand for locally produced goods decreased, oil marketing corporations (OMCs) likewise refused to remove petroleum stockpiles from Parco and other refineries.
The Petroleum Division has requested action against the supply of illegal oil in a letter addressed to the interior ministry and the FBR.
Separately, the interior ministry wrote the FBR chairman requesting a report on Pakistan’s gasoline usage as well as action against those responsible for oil smuggling.
The FBR chairman has ordered all affected Customs departments to take measures and provide a report in the meantime.
The Ministry of Petroleum expressed worry in their letter that illegal diesel was quickly displacing legal diesel in the market. According to the ministry, smuggled Iranian fuel is mostly satisfying consumer demands during the current agricultural harvesting season as demand for diesel from official sources, such as OMCs, has fallen drastically.
Cited as having confirmed rumours that lawful sales of OMCs had sharply decreased.
From March through June of last year, the average daily fuel consumption stayed between 23,000 and 30,000 tonnes. However, average sales began to fall in mid-February 2023 and stayed at 12,770 tonnes per day in March.
According to Ogra, “cross-border product has caused a more than 40% decline in diesel sales compared to last year.”
The Petroleum Division also stated that due to a significant pricing difference, smuggling had for a very long time negatively impacted the official oil industry in Balochistan as well as other regions of the nation.
According to statistics provided by Ogra, cross-border smuggling levels have reached roughly 4,000 tonnes per day, which translates in a monthly loss of legal sales of nearly 120,000 tonnes (143 million litres).
This loss results in a comparable reduction in imports and a commensurate reduction in customs duty. Total revenue loss in terms of petroleum levy, customs duty, etc. as a result of the decline in sales is
In addition, smuggling has forced local refineries to restrict production due to a large decline in the lifting of petroleum products, which “leads to supply insecurity for products other than diesel”.
Oil refineries are now running between 50 and 70 percent of their output capacity. They have roughly 675,000 tonnes of fuel on hand, enough to cover the demand for 44 days.
The Petroleum Division stated that “it is requested that appropriate stern action may be taken in order to curb the menace of oil smuggling across the Iranian border areas,” adding that “anti-smuggling enforcement falls in the domain of Ministry of Interior/law enforcement agencies aside from the FBR/Customs authorities and the provincial government of Balochistan.”