Oil Companies Oppose to Introduce Higher Quality Diesel

Oil marketing companies (OMCs) and refineries have rejected outright the government’s directive to introduce Euro-III & Euro-IV compliant high-speed diesel (HSD) in the country, claiming that it is not feasible to sell the higher grade product on the Pakistani market.

Sources told Dawn that the Ministry of Petroleum and Natural Resources had recently written to OMCs and refineries about its intentions to make Euro-III and Euro-IV compliant HSD available in the market.

The ministry proposed to do so through imports in a deregulated environment, and subsequently upgrade local refineries capable of matching the quality of the imported product.

Sources said the Oil Companies Advisory Council (OCAC) — an umbrella forum of almost two dozen OMCs and refineries — was asked to suggest a mechanism and timelines for the introduction of imported, and then locally-produced HSD in the market.

Higher-efficiency fuel not viable if enabling environment not created

But OCAC, on behalf of the oil industry, rejected the move. It is believed that a cost-benefit analysis did not support such a major shift, sources in the petroleum ministry said.

The oil industry reported that even in Europe, the transition from Euro-I to Euro-V took 16 years, beginning with Euro-I in 1993 and culminating in Euro-V in 2009, where these standards were designed and adopted.

The reason for this was that the Europe adopted the methodology to first design Euro-II, Euro-III, Euro-IV and Euro-V emissions compliant engines and then mandated the fuel specification required. In this way, the industry was given adequate time to upgrade. “It was a tortuous road, just as it has been for local (Pakistani) refineries as well,” OCAC had said.

It said that Euro-II had only recently been introduced in Pakistan, i.e. on Jan 1, 2017. This was when all imports — accounting for about 50% of the total demand — were switched to 0.05% (500 particles per million) from the previous import specifications of 0.5% (5,000 particles per million). This was a substantial change, which would have a positive impact on the environment.

Environment-friendly but expensive

Higher grade fuels are considered more efficient and environment-friendly, but are expensive. Pakistan used to have 0.5% sulphur content HSD, which produced 5,000ppm until recently. This is currently being replaced with 0.05% Euro-II having 500ppm. Euro-III should have 0.035% (350 ppm) and Euro-IV 0.005% (50ppm).

Interestingly, while the Pak-Arab Refinery in Multan and Attock Refinery in Rawalpindi are already producing Euro-II HSD, the remaining refineries had been given the target of June 30 to upgrade to Euro-II compliance. With this, about 85% of the country’s HSD pool would become Euro-II compliant by 1^st July 2017.

But on the other hand, there is no enabling market in Pakistan to ensure that vehicles are environmentally-friendly. For example, annual vehicle inspections, mandated vehicle tune-ups and action against smoke-emitting public transport and goods vehicles are not a norm or legal requirement in Pakistan, but are strictly implemented in Europe. Therefore, even the positive impact of Euro-II HSD would be less than optimum if an enabling environment is not in place.

Therefore, OCAC argued that the actual impact of moving to Euro-II needed to be established to ascertain whether a reduction in particulate matter and carbon dioxide emissions in urban areas would occur, which would establish the baseline for a future shift to Euro-III and Euro-IV.

It said that moving from Euro-II to Euro III, IV and V diesel “would only have a potential positive environmental impact and no direct benefit will come to the consumer in terms of efficiency or price”. Also, the vehicle pool in the country was mostly old and in poor condition and hence the use of higher quality fuels will not necessarily improve emissions from such vehicles.

As if that was not enough, the oil industry asserted that having additional grades of HSD will not necessarily attract buyers since HSD was almost all consumed by the transport, trucking and farm sectors. With no added benefit to the consumer, there is no incentive to switch to a higher priced HSD.

From Dawn