ISLAMABAD: While smuggled diesel has flooded local markets with average inflows of 10 million litres per day, Pakistan State Oil (PSO), the country's largest fuel importer, has struck expensive oil import deals, internal shipping documents obtained by The Express Tribune reveal.
Expensive Imports
Two vessels, MT Celestial and MT Celine 1, each carrying 33,000 tonnes of high-speed diesel, have arrived with the final landed cost of $177.36 and $179.23 per tonne respectively if PSO's usual purchase terms and pricing period are considered. Both cargoes were priced on a "five days around Bill of Lading" basis, in line with PSO's standard tender terms. As Platts stands at around $140 per tonne in the current week, the purchases imply notional losses of $1.27 million.
PSO's Response
When asked for comments, PSO Managing Director Jawad Cheema said that the two cargoes had been booked earlier and were not new orders. He emphasised that the company would not have to pay demurrages as the supplier had agreed to bear that cost. Cheema underscored that the cargoes were containing a small quantity and premium rates were not too high, adding that the premium on oil imports was at higher levels in March, which dropped later.
Smuggling Impact
Meanwhile, diesel smuggling, predominantly from Iran, has surged to an estimated 10 million litres per day, according to industry estimates, effectively displacing formal-sector imports and the domestically refined product. The smuggled fuel, untaxed and unregulated, enters the market at prices that legitimate importers and refiners simply cannot match.
Beyond distorting the market, the illicit trade is also inflicting a heavy fiscal cost. Industry calculations suggest the government is losing nearly Rs1 billion per day in taxes and duties that would otherwise have been collected through legal sales. Payments for the smuggled fuel are typically settled in US dollars through informal channels outside the banking system, resulting in a continuous outflow of foreign exchange.
Refinery Crisis
Pakistan's refineries have in recent weeks been quietly asked by the Ministry of Energy to "explore options" to reduce diesel output as the market becomes saturated with informal supply. Several refinery executives, speaking on condition of anonymity, told The Express Tribune they had been unable to offload the finished product for weeks, with procurements by oil marketing companies (OMCs) collapsing to 18-year lows.
"You have a state-owned enterprise spending public money to import diesel at (high) prices, while the market is drowning in cheap smuggled fuel and local refineries can't sell what they produce," said a senior official of a foreign-owned OMC. "Govt has sold cheap diesel at the cost of OMCs as it still hasn't cleared price differential claims of March."
"The government has been unable or unwilling to meaningfully stem diesel smuggling from Iran," said an Islamabad-based energy economist. "So you end up with a perverse equilibrium – the formal market collapses, the state entity keeps importing on inertia and the only winners are smugglers."
Multiple refinery officials warned that if diesel offtake did not recover to previous levels, they may have no option but to shut their plants, which would further aggravate the country's energy security.
