Staff Report
ISLAMABAD:
The federal cabinet on Tuesday is likely to ratify a decision of Economic Coordination Committee (ECC) regarding allowing operational losses up to a maximum of 0.5 per cent for petrol (gasoline) transportation through White Oil Pipeline and Mahmoodkot-Faisalabad-Machike (MFM) pipelines through Inland Freight Equalisation Margin (IFEM).
Earlier on Wednesday 916th June 2021), ECC had granted its approval over the summary of Ministry of Energy (Petroleum Division) seeking permission for fixing operational losses up to a maximum of 0.5 per cent for petrol (gasoline) transportation through White Oil Pipeline and Mahmoodkot-Faisalabad-Machike (MFM) pipelines through the Inland Freight Equalisation Margin (IFEM).
According to documents, currently, entire up-country demand of diesel is being transported from Karachi to Lahore through the WOP and MFM pipelines.
Pak-Arab Pipelines Company Limited (PAPCO) and Pak-Arab Refinery Company Limited (PARCO), the pipeline operators, have been pursuing a project for converting the two pipelines from the present single product, diesel, to multiproducts including diesel and gasoline, one with an investment of around $194 million.
Similarly, Oil Marketing Companies (OMCs) have also made significant capital investments in storage tanks and its associated facilities at various delivery points along the pipeline. The project has been technically been completed while its commissioning is expected around June-July-2021.
The two retail fuels namely gasoline and diesel are currently distributed through the length and breadth of the country by tank lorries exclusively in case of gasoline, sales of around 10 billion litres in FY20 and combination of tank lorries & pipeline movements in case of diesel sales of around 7.9 billion litres in FY20).
Gasoline is a volatile product with a high evaporation rate, which results in significant working losses when handling the product. As such, the operational losses would be much higher in gasoline transportation as compared to diesel, due also to multiple handling of the product from ship to storage tanks, to pipeline then off take at Shikarpur, Mehmoodkot, Faisalabad, and Machike storages as well as Intermix handling and reprocessing.
The oil industry has stated that operational losses in pipeline transportation can neither be absorbed by OMCs nor by PAPCO/PARCO, out of their existing margins.
It has therefore, been recommended that operational losses up to maximum of one percent for gasoline transportation through WOP & MFM pipelines should be included in Inland Freight Equalisation Margin (IFEM) calculations.
Since pipeline operators have to conclude transportation agreements with OMCs covering the provisions for operational losses, the issue needs to be resolved for recovery mechanism prior to commissioning of the multi-grade movement project.
It is also learnt from documents that primary movement of gasoline through pipeline, after accounting for 0.5pc operational losses, would still result into a typical freight saving of Rs3.38 per litre on the volumes to be moved in the main segment i.e. Karachi to Mehmoodkot near Multan.
The other ancillary benefits of this shift include road safety, environmental pollution, efficient transportation, less congestion and reduced wear and tear of highways, which are not so easily quantifiable, but are significant.
