About a century ago the first oil producing well in Pennsylvania. USA, was drilled and this was how modern oil industry, which has literally speeded the world to its phenomenal progress of the past century, was born. Crude Oil has very little value. either as a fuel or as a lubricant. Practically, every barrel produced has to be transported to the Refineries, which breaks its down to many products useful to mankind.
The consumption of energy in a country is a direct measure of its rate of economic development. Petroleum products are a very substantial source of energy in the world today and it, therefore, follows that the rate of growth of their consumption indicates the rate of a country's economic development. In a country like Pakistan, where other sources of energy, such as Coal, Hydro-Electricity and Atomic Power are still to be developed, the importance of Petroleum Oils cannot be over-emphasised. This essential commodity is needed in very part of Pakistan and its consumption ranges from providing the only source of light in a small dwelling of a villager in a remote area, to making the wheels of industry move and keeping the means of communication open for us, on the land, at the sea and in the air.
According to statistics available in the 'Economic Survey 1993-94', about 7 per cent of energy in Pakistan is obtained from Oil and Gas, 16 per cent from Hydel Power, 5 per cent from Coal and 1 per cent from LPG and Nuclear. The share of oil in total energy picture comes to 42 per cent and the share of natural gas 36 per cent. The installed Electric Generation Capacity has increased from 10,598 MW during July/March 1992-93 to 11,346 MW up to July/March 1993-94, showing an increase of 7 per cent.
The production of gas also increased from 1,492 MCF to 1581 MCF, showing an increase of 6 per cent during the same period. However, production of Oil slightly declined from 61,144 to 60,755 barrels per day. PMDC coal production has also declined by 10.5 per cent over a corresponding period last year due to rains and floods.
During 1993-94, a number of policy decisions were taken with a view to reduce the existing supply-demand gap in the energy sector. A task force on energy sector was set up and its recommendations are being implemented. Ghazi Brotha Hydel Electric Project with a capacity of 1425 MW generation has been proposed. Similarly, a Thermal Power Project at Hub, 60 km from Karachi, has been undertaken in the private sector and is expected to generate 1292 MW electricity. A new Petroleum Policy which offers enormous Incentives for investment in this sector was announced on February 20, 1994.
Due to new Oil and Gas discoveries and improvements in the energy sector, the oil import bill has been reduced to some extent. During 1993-94 (July/March) Petroleum Crude and Petroleum Products worth $ 1052.6 million were imported as compared to $ 1136.1 million over the corresponding period last year. The recoverable resources of crude oil as on March 1, 1994, were 197 million US barrels. Currently 18 Local and Foreign Oil Companies are engaged in Petroleum Exploration activities in the country over an area of 174,000 Kms. The new policy is aimed at accelerating Petroleum Exploration and thus to enhance Gas and Oil Production.
The new concession terms offered by this Government are expected to attract foreign investment in this field. The average oil production during the period remained at 57,800 barrels per day. A major find of coal in Tharparkar would play a pivotal role in the Energy Sector and a Thermal Power Station with a generation capacity of about 1000 MW is on the anvil.
A consumers item which is used in such varied forms and is therefore produced in a large spectrum of specifications, obviously needs a complex system of marketing to make it available to each type of consumer. Marketing of any product means making the product available in the manner and at the location where it is required by the consumer. In case of oil products, marketing comprises of every step that is necessary from the time the oil leaves the Refinery to the moment it is delivered to the consumer - say the fuel tank of your car.
An oil marketing company, therefore, can only function if it is equipped to handle the storage, distribution and dispensing arrangements at the locations where the oil is needed. The oil marketing in Pakistan is patterned on the same system as evolved over the years in the more economically advanced countries of the world, like the United States of America and Western Europe. Depending on the sources available in, a country and the operation facilities that can be provided, the system of marketing is practically the same in all countries of the world where free economy is practised.
Storage and Distribution
In case of storage, the first requirement is a large Terminal comprising of tanks which can accommodate adequate inventory of various products to cater to different customers.
Main Installation Keamari
In our country main Terminals are located at Karachi. Such locations were necessary to accommodate the supplies by sea tankers which were imported from other countries. After independence, Pakistan has developed two Refineries at Karachi, which are able to meet practically our entire demand leaving a sizeable deficit in certain middle distillates, which are still being imported. Attock Oil Refinery at Rawalpindi has been in operation much before independence, but now its capacity has been increased to 2 million tonnes per annum.
Upcountry Bulk Depots
The next requirement of storage involves our network of bulk depots throughout the country, where sufficient stocks can be stored to meet the requirements of the region where these are located. PSO today operates over 32 storage Depots, with three main installations at Keamari and one (jointly with other companies) at Mahmood Kot. These depots are much smaller in size than the Ocean Terminals, in that, such storage is essentially meant to cater to about a fortnight's requirements in fifty to one hundred mile radius of the area where it is located.
In addition to the above storage pattern, this company - Pakistan State Oil - has developed a concept of Inland Terminals was necessitated to have the product available in the upcountry markets at all times, regardless of the shortages and difficulties of transportation from Karachi in any season. These PSO Terminals are located at Shershah, Kalashah Kaku and Sihala. Another one is under construction near Shikarpur.
Product Movement to Upcountry Depots
The distribution involves arranging of transportation to enable an oil marketing company to move the products from the Ocean Terminal to the Storages upcountry. In Pakistan, prior to July 1981, this was accomplished by means of rail wagons and road transportation. However, from July 1981, with the commissioning of PARCO pipeline system, transportation of HSD and SKO only is being done through a pipeline system from Keamari to Mahmood Kot (District Muzaffargarh). From Mahmood Kot, where adequate storages have already been installed, HSD and SKO is being moved to the northern sector, both by rail and road. The annual estimated movement of HSD and SKO through pipeline is well over 3 million tonnes.
a) Consumer (Direct)
b) Reseller Market, i.e. (i) Agency Trade, (ii) Automotive Trade, and (iii) Asphalt
d) Special Business
The marketing pattern can be broadly divided into two sectors viz, the Consumer or Direct Business and the Retail or Reseller Market. The Retail Trade is further subdivided into three categories, i.e. the Agency Trade, the Automotive Retail Business and Asphalt. The Consumer or Direct Business obviously caters to customers having very large requirements and these include the Defence Services, Railways, Industrial Units, Shipping Companies, Airlines, large construction projects and several other government and semi-government bodies. This category of business is conducted on a periodical contract basis. The consumer invites quotations from all marketing companies, and depending on the quantities and period of the contract involved, the companies give their quotations mentioning the rates and the facilities that they are in a position to offer. The contract is awarded after negotiations of the terms and conditions to the company which has offered the best facilities and service to the consumer. The biggest single contract of this nature was concluded by PSO with Tarbela Joint Venture, the contractors responsible for building the Tarbela Dam, which as you are aware, is the biggest civil contract ever awarded to a construction firm anywhere in the world so far. Depending on the needs of the consumer, facilities offered by the marketing companies include independent storages, assurance of continued supplies, and free technical service, to assist the customer in the proper use of the petroleum products and correct maintenance of the machines.
Direct Business, as described above, constitutes about 50 per cent of the total products sold by a marketing company in the country. The balance 50 per cent is sold through Retail Marketing, which is primarily conducted through a Reseller Network. LPG and Special Business is being covered separately in this POL Course.
The first category under Retail Marketing is known as the Agency Trade and this, as the name implies, is handled through Agents, also known as Distributors, appointed throughout the country to cover a particular territory around the location where they are established.
The territories or distributorship areas are determined by the economic feasibility of the agents' limited resources. The two main products marketed in this manner are Kerosene and Light Diesel Oil. However, the distributors are also allowed to handle Fuel Oil, Lubricants, and High Speed Diesel, wherever it is possible for them to do so. These distributors are independent businessmen and their connection with the Company is only through a Distributorship Agreement, giving the terms and conditions and the commission applicable for each product determined by Agricultural Price Committees established in every District.
They place order on the Company in bulk quantities which are delivered to them by means of tankwagons or tanklorries and stored by them in their own godowns and small depots in receptacles ranging from 45 gallon drums to five or ten thousand gallon tanks. In certain areas, the companies assist these agents (which are 704 in number) by providing larger storages which are termed as Agent Operated Depots. The Distributor conducts his marketing in Retail directly from his shop or godown and also through the sub-agent appointed by him to cover certain areas which are uneconomical for him to handle directly.
The Retail Outlets, which are 2469 in number, are operated by Dealers who are appointed in the manner as the Distributors mentioned earlier in our discussion. Each individual dealer is responsible for operating the Station completely as all independent business and purchases the products from the Company in bulk quantities. The Dealership Agreement provides commission on every product handled, which enables him to pay for the operating expenses and make a profit as a middle class businessman.
It will not be out of place to mention that we are the pioneers in Asphalt Marketing in Pakistan. Our former unit PNO, introduced NRL's Asphalt in Pakistan and exported its products. NRL's entire production was handled by PNO till NRL was nationalised. We have been responsible for establishing "Bulk System of Despatches", which has resulted in substantial saving of Foreign Exchange, which would, otherwise, have been spent to import MS Sheets for drums. PSO is the only Oil Marketing Company in Pakistan having a qualified and experienced staff who can advise on application of Asphalt in all walks of life. It would be proper to emphasise that Oil Marketing has kept pace with the times and in a developing country like Pakistan, where economic conditions are rapidly improving, the Marketing of Petroleum Products will continue to be a challenging field of activity. The rise in consumption and the changing requirements of the consumer necessitates corresponding rise in standards of service and Pakistan State Oil will provide the same as the situation demands.…