Comparison of the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016 and Amendments 2018

At Josh and Mak International, we prioritise keeping our clients informed about the latest regulatory changes in the oil and gas sector. This article provides a detailed comparison of the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules, 2016, and the amendments introduced in 2018.

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Introduction

The Pakistan Oil (Refining, Blending, Transportation, Storage, and Marketing) Rules, 2016 (hereinafter referred to as the “2016 Rules”) were established to regulate the refining, blending, transportation, storage, and marketing of petroleum products in Pakistan. In 2018, several amendments were made to these rules to address various operational, compliance, and regulatory issues that had arisen since the original enactment.

Key Changes and Amendments

1. Definitions:

• 2016 Rules: The definitions provided in the 2016 Rules covered essential terms such as adulteration, blending, common carriage, and storage.
• 2018 Amendments: Significant changes were made to the definitions, particularly:
  • The definition of “storage” was expanded to include any facility exceeding five thousand litres, explicitly excluding petrol pumps and bulk consumer facilities from this definition. This change aimed to provide clarity and better regulatory control over storage facilities.

2. Licensing Procedures:

• 2016 Rules: The original rules specified the licensing procedures and the duration of licenses for various activities related to oil refining and marketing.
• 2018 Amendments:
  • The time frame for processing licenses was extended:
    • The period for considering a license application was changed from three to five years.
    • The period for issuance of a license after application acceptance was extended from fifteen to thirty days.
  • Additional conditions were introduced for the cancellation of licenses, specifying that licenses cannot be cancelled without valid reasons.

3. Production and Sale of Petroleum Products:

• 2016 Rules: Refineries were required to submit production programmes and could sell petroleum products to specific entities.
• 2018 Amendments:
  • Refineries must submit their production programme one month before the commencement of each financial half-year and notify any changes to the Authority immediately.
  • The sale of petroleum products was restricted to oil marketing companies, blending plants, and bulk consumers through written contracts specifying quantity, supply schedules, and pricing terms.

4. Storage Facility Regulations:

• 2016 Rules: Basic guidelines for the storage of petroleum products were outlined.
• 2018 Amendments:
  • No refinery, blending plant, or marketing company could rent, lease, or sublet their storage facilities for non-petroleum storage without prior permission from the Authority.
  • New sub-rules were added to manage the construction, reconstruction, and operation of storage facilities, requiring compliance with technical standards and environmental approvals.

5. Operational and Safety Standards:

• 2016 Rules: Emphasized general safety and operational standards for handling petroleum products.
• 2018 Amendments:
  • Detailed requirements for operational safety, including compliance with specific codes and standards for vehicle conversion to LPG and the establishment of LPG refuelling stations.
  • Provisions to ensure the safety of LPG supply chains, including mandatory certifications and safety inspections by authorized bodies.

6. Fee Structure and Financial Requirements:

• 2016 Rules: Outlined basic financial obligations for obtaining and maintaining licenses.
• 2018 Amendments:
  • Introduced a detailed fee structure based on throughput and storage capacity.
  • Specified project financing requirements, ensuring financial stability and due diligence.

7. Miscellaneous Provisions:

• 2016 Rules: Contained general provisions regarding the regulation of oil refining and marketing.
• 2018 Amendments:
  • Introduced new provisions for the inspection and sampling of petroleum products.
  • Defined procedures for the relocation and reconstruction of facilities, ensuring that all changes are pre-approved by the Authority.

The amendments introduced in 2018 to the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016 aimed to enhance the regulatory framework governing the petroleum sector in Pakistan. However, while these amendments were intended to improve clarity, safety, and operational efficiency, they also present several challenges and areas of concern. This critical analysis evaluates whether these amendments effectively address the issues within the sector and whether they are beneficial overall.

Positive Aspects of the Amendments

1. Enhanced Clarity in Definitions:

• The amendments provide clearer definitions, especially regarding “storage” and other operational terms. This helps to eliminate ambiguities that previously caused regulatory and compliance issues.

2. Improved Licensing Procedures:

• Extending the time frame for processing and issuing licenses offers regulators more time to thoroughly vet applications, potentially reducing the risk of malpractices and ensuring that only compliant entities are granted licenses.

3. Strengthened Safety and Operational Standards:

• The inclusion of detailed safety requirements and adherence to international standards for storage and handling of petroleum products is a significant step towards ensuring the safety of operations and protecting the environment.

4. Financial Transparency and Stability:

• Introducing a detailed fee structure and project financing requirements ensures that entities involved in the petroleum sector are financially stable and capable of meeting their obligations, reducing the risk of financial defaults and enhancing market stability.

Areas of Concern and Criticisms

1. Extended Licensing Time Frame:

• While the intention behind extending the licensing time frame is to ensure thorough vetting, it may also lead to bureaucratic delays. This can discourage investment and slow down the pace of industry development, particularly for new entrants who may face prolonged periods of uncertainty.

2. Increased Regulatory Burden:

• The amendments introduce several new compliance requirements, including mandatory certifications, inspections, and detailed reporting. While these measures are beneficial for safety and transparency, they also increase the regulatory burden on companies, potentially raising operational costs and creating barriers to entry.

3. Potential for Increased Costs:

• The detailed fee structure and additional financial requirements could lead to increased costs for companies. These costs may be passed on to consumers, resulting in higher prices for petroleum products, which is contrary to the policy’s objective of making LPG available at affordable prices.

4. Restrictive Provisions for Storage and Sales:

• The amendments impose stringent controls on the rental, leasing, or subletting of storage facilities and restrict sales to specific entities under written contracts. While these measures aim to ensure transparency and accountability, they may reduce operational flexibility for companies and limit their ability to respond quickly to market demands.

5. Implementation and Enforcement Challenges:

• The success of the amended rules heavily relies on effective implementation and enforcement by regulatory authorities. Given the historical challenges faced by regulatory bodies in Pakistan, there is a risk that these amendments may not be enforced uniformly, leading to compliance discrepancies and potential regulatory arbitrage.

Conclusion

The amendments to the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016 introduced in 2018 represent a mixed bag of improvements and potential drawbacks. While they enhance clarity, safety, and financial stability, they also increase the regulatory burden and operational costs for companies within the sector.

For the amendments to be truly effective, it is crucial that the regulatory authorities streamline the licensing process to avoid unnecessary delays, provide adequate support to companies to meet the new compliance requirements, and ensure consistent enforcement across the sector.

Overall, while the amendments are a step in the right direction, their practical impact will depend significantly on the efficiency and effectiveness of their implementation. Companies operating in the petroleum sector should stay informed about these changes and seek professional legal advice to navigate the complexities of compliance and leverage any opportunities the new regulatory framework may present.

For further insights and detailed guidance on how these regulatory changes may affect your business, please contact Josh and Mak International. Our team of experienced legal professionals is here to assist you in navigating the evolving regulatory landscape.