Who Will Fund Pakistan's Plan To Build Strategic Oil Reserves ? | Economic Pulse with Shahbaz Rana

Added: 2026-05-24

[00:00:01]Welcome to the first session of the great energy debate and the fiscal stability of Pakistan. We are today joined by a very powerful panel. These people who are experts in public policy, they are expert in free market, and they know the energy sector. We are joined by Dr. Afia Malik Saiba. She's a public policy expert. Then we are joined by Sajid Amin. He works with the SDPI. And we are joined by Dr. Khakan Hassan Najeeb. He's a former advisor to the Ministry of Finance. Dr. Ali Salman, he's the head of Prime.

[00:00:31]And Adil Khatak Saab, he's the CEO of the Attock Refineries. And and the chairman of the session will be Khurram Dastgir Khan, former Minister for Defense, former Minister for Commerce, and former Minister for Energy. So, we'll go towards our panel with the with with the first question. The government did two good things, which is rare, but it happened. It immediately shifted to weekly price determination from the fortnightly requirement. And because the government knew the kind of increase that was coming because of war, it would be difficult for the consumer to bear the brunt in one go. So, it started setting the prices on weekly basis.

[00:01:09]And then the second good thing happened that it immediately increased the prices. Although there was a criticism, and there is still criticism on this point, that why the prices were increased when you had stocks from the previous 1 and 1/2 month.

[00:01:22]The reason was simple.

[00:01:23]The oil refineries, oil marketing companies, they were looking for some sort of sureties from the government that they will not be stuck up in the circular debt. And the point that the Minister Ali Pervez Malik made was where it was it it proved the fact that there was no accumulation of circular debt in the gas sector or in the petroleum sector because of this crisis. Crisis, and this is unique. And this brings me to the I'll just wrap up what was said in the first session and few things and few thoughts. But what Dr. Abid Suleri said that dollar today but charge tomorrow. This this is the point that that is quite central to our today's discussion in Pakistan. So, whether the government should absorb the price pressure or it will go for passing on the increase in international market to the to the domestic consumers because we don't have the fiscal buffers. Uh then father said something about affordability and sustainability. And the And the critical point that Ali Pervez Malik made was the structural reset of energy.

[00:02:31]And then the final thoughts that came from Dr. Nafeesa Shah.

[00:02:36]Two two critical points again. The energy security. Can there be economic sovereignty? Can there be sovereignty of a nation without the energy security? Security that is the key question. And importantly, when we talk about the lack of fiscal buffers, the external pressures. Yes, these are two very critical points. What about the rest of the population of the country?

[00:02:59]Can they bear the pressure? So, these are the few questions that I'll be raising. I'll ask my panelists. They're very powerful people here, some of whom I've been meeting for decades. Some of have been accused of feeding me information. Uh few of them [laughter] are not that So, I'll I'll begin with with very foundational question and that is uh war has badly impacted the hydrocarbon production in the region. And if war ends today, it will take it will take maybe a year to go back to the normal production. So, I'll I'll start with I'll start with you on this question. So, what are what are policy choices for Pakistan if war ends today? When the world and the region would return to the normalcy that we had before Feb 28?

[00:03:44]If this is your question, you have five minutes.

[00:03:51]>> [snorts] >> Okay.

[00:03:55]>> Okay.

[00:03:56]Talking of hydrocarbon, of course, we have basically three or two main segments. One is upstream sector where the E&P or exploration company is part of the role, and then we come to the midstream or the downstream which basically come to refining as well as oil marketing and in the retail network, right?

[00:04:16]>> [snorts] >> So, because I'm more concerned with the refining business, so I think I'll start with that.

[00:04:24]Believe it or not, for the last 6 years or probably even more, we have been working to build up a policy to enable the local refineries to upgrade.

[00:04:34]And by upgrading, basically what we mean is to meet the Euro 5 standard specification as far as environmental concerns are relevant.

[00:04:43]And then also to reduce furnace oil production, which can because we are basically a very basic refinery right now, so a big percentage, 30 to 40%, comes out in the form of furnace oil. Whereas the demand is drastically reducing.

[00:05:01]And turn it to more value-added products, or rather deficit products like diesel and motor gasoline.

[00:05:08]So, because of these delay for various factors, and this policy for operation brownfield refinery was finally approved about 2 years back.

[00:05:16]Then there were some lacunas left, and they were even they were threshed out in I think February 2024.

[00:05:22]Since then, it's been delayed for one reason or the other.

[00:05:26]Finally, you know, I I must give credit to the minister, Mr. Malik.

[00:05:32]And other They're also being, because of this war-like situation, the recent crisis, I think the the the people at the higher level of authorities have at least come to realize the importance of their own local refineries.

[00:05:47]So, now currently it's being pushed and we are quite hopeful that some necessary amendments or changes would be made and then we can proceed with the operation project.

[00:05:57]This project will not only enable the refineries to meet the most modern or recent specifications of product, but also would bring in investment to the tune of 5 to 6 billions of dollars into this sector.

[00:06:11]So, we hope something would happen.

[00:06:14]Another point I would like to make is the minister also mentioned and you also mentioned the need to have a buffer buffer sort of or what we normally call it under siege SPRs as strategic petroleum reserves.

[00:06:28]The study was carried out a huge voluminous study and then it went into the as you know no the file was put somewhere and probably they lost it because they even couldn't find the copy. Fortunately, I had the copy of there which I shared with the minister only recently.

[00:06:43]So, [snorts] we have again started working on that.

[00:06:46]And even in that there is a very good opportunity for an option which is again a real life example like for example, the oil producing countries having their strategic petroleum reserve in countries which are major importers of petroleum.

[00:07:02]And that can prove to be a very viable option for Pakistan.

[00:07:06]So, I think at this moment of time I just refer back to my comments and then as you go along the Yeah, I'll come back to the question of oil refineries upgradation and building the strategic reserves later on.

[00:07:16]>> [snorts] >> Uh Ali Salman you have worked on on promotion of the private sector in Pakistan. The hurdles that are in in the way of attracting foreign investment or even local investment. Uh so, Khurram has just talked about attracting the requirement of having 5 to 6 billion dollars investment uh to upgrade these refineries and this building strategic reserves. Is it possible?

[00:07:43]The question is it possible to attract the investment?

[00:07:46]>> Uh given given the circumstances, the overall investment environment in Pakistan, how much time it will take to bring in 5 to 6 billion dollar investment in Pakistan in the in the petroleum petrochemical sector?

[00:07:59]>> Well, I think if you talk about the investment climate in general or business environment in general, you know, I would like to first of all acknowledge that since last 1 year at least, uh the government has actually undertaken significant regulatory reforms.

[00:08:16]Um and we we also have been part of this FDI-oriented you know, reforms, uh which were introduced in terms of, you know, make you know, ease of doing business.

[00:08:28]Uh there are very fundamental issues which have still to be I think to be addressed. For instance, there was one issue of uh appointment of foreign directors.

[00:08:37]Uh this may not relate directly to the energy sector, but it relates in general to all FDI oriented sector.

[00:08:45]Whether you know, what what how much time do you need to you know, give a security clearance to appointment of foreign directors to such companies. And whether a a person when once he is appointed, um but you know, it it takes a lot of time actually to materialize and to make sure that all these decisions which are taken at cabinet level are actually implemented at on on the ground in the company. So, when we talk to the companies, they still complain that okay, while the government is taking those measures and announcing these measures, there are about 400 regulatory reforms which were announced last year.

[00:09:23]Uh that that had you know, on which the cabinet has taken you know, a decision, but then it it there is always a sort of a lag between those decisions and the implementation on on ground. Um and um I think that still remains the case. Um and I have you know also if you look at the history for instance the one of the important incentive would be the pricing. So if we introduce any caps on the pricing I would say even introduce if we keep let's say the profit margins throughout the value chain this is against the idea of free markets. So I think there should be differentiation in the in terms of supply and actual actual consumption on the on the petrol stations in terms of the cost and the the cost for the consumer should be reflected of all the costs which the private sector is bearing. We should not have I am not sure if we should have a uniform cost of petroleum products for instance.

[00:10:28]So there are these I think hurdles which are still there and sometimes I believe that fixing the margins fixing the profit margins within the sector may be favoring the industry players players themselves.

[00:10:41]>> Ali you are talking about the deregulation and the entire ecosystem and given the overall weak regulators that we have we will discuss this point later.

[00:10:50]Afia Malik Sahiba you know Pakistan's economy is driven by consumption. Almost 97% growth is coming from consumption. And given the situation in the region the the recent report by the IMF on the Middle East and North Africa region the consumption is going down hoteling industry suffering tourism is suffering.

[00:11:08]And in case of Pakistan there is the impacts are already there.

[00:11:12]So if if consumption goes down which is the case here because the prices are so high. So what will be the implication for Pakistan's economic growth and what are the options for the policy makers?

[00:11:26]Thank you so much.

[00:11:29]Okay. You're absolutely correct that the consumption has gone down and why it has gone down we have to look at the past few years the prices of energy energy prices in the past they have effect they have significantly affected the purchasing power of the household for the consumers. And it has affected the the purchasing power and the ability to to spend or to consume other um >> [snorts] >> non-necessary or I would say other kinds of activities. And this has a negatively impacted when there is they are not consuming as their purchasing power has gone down it has affected the growth as well because economic they are no economic activities they are going down and when there there is no economic activity it is going to affect the economic growth. So, what options do we have? We have to think holistically as we as this is basically the theme of this session as well.

[00:12:22]Uh, energy security is not just about cheap energy. It is about um affordability as well as the reliabilities of supplies as well.

[00:12:35]And when we are talking here only about the petroleum we are more mainly we are focusing on the petroleum side. But at the same time we have to keep in mind the structural weaknesses which are on the in the overall in the in the energy supply chain which which exist. And which our Minister of Petroleum also mentioned about about the grid about the grid infrastructure.

[00:12:58]Which And all the blame is on the distributed energy but the problem lies with not with the distributed energy or with the solar. The problem lies with the grid with the obsolete grid which has not been upgraded over the last several decades. And why the solar people have opted for solar because of the prices.

[00:13:18]The prices of the grid prices have gone up so much that it become uh, it It's impossible for them to for them. So, they opted It was the market forces. The solar was cheaper as well as the grid prices were very high.

[00:13:33]So, they opted for solar. So, it was not the fault of the distributed distributed solar or the consumers who opted for solar. It was the issue was with the grid.

[00:13:44]And with the Yes, another structural weakness which exist in our system is the storage. We talked about the petroleum storage. What about the electricity storage system?

[00:13:54]Battery? Battery There is a solution of batteries. Why not our grid is upgrading and having their own battery storage systems? If they have the Yes, it is correct. In this whole crisis uh support was provided by the solar. But the problem still exist because we do not develop the battery storage system. So, all these factors So, what options do we have? We have to think holistically and our monetary and fiscal policies should be designed to target those strategic energy investments which help not just uh help in reducing the import dependency but also which Dr. Nafisa Shah also mentioned about the energy equity, energy poverty. It is equally important to focus on those areas.

[00:14:42]These issues when sorted out then the consumption will automatically goes up, economic activities will generate, and it will add it will because our focus should be now focus should be more towards growth. Our priority should be growth and growth not based on increased resource based consumption, increased consumption of resources, but through structural transformation of our whole setup of our growth setup. I guess I have you have raised very pertinent points that I'll request the chair towards the end of the session to respond because he was the Minister of Minister of our Commerce, Minister of our Defense, and importantly Minister of our Energy. And why there is no national grid?

[00:15:19]>> [laughter] >> Well, why there is no national grid and why there were no transmission lines when we had all these power plants? So, you would be taking notes of that and another important issues of growth, whether to chase growth or go for the fiscal stability uh that is critical issue that the chair may also like to respond towards the end. So, that means uh uh very pertinent point about uh dollar today but charge tomorrow.

[00:15:46]So, that's a challenge and this thought is coming from your executive director.

[00:15:51]He made this point. So, can you please further elaborate what your boss said about doling out today and charging tomorrow? And given the fact the the the predictions and the forecast that we have from the IMF and the global energy bodies that forecast these prices uh the prices may not come down even after 1 year and the prices if these global crude Brent crude oil prices rise over $130 per barrel. So, how easy it will be to charge to today and delay the doling outs?

[00:16:23]Thank you.

[00:16:25]Uh I think important question, but let me make two general uh points before coming to this discussion to to set the context.

[00:16:34]I think every crisis that we're having and particularly in last 5 years uh is really limiting the capacity to response to these shocks.

[00:16:46]And particularly to the countries like Pakistan uh who are entering to these crises every time with limited options uh both financially and in terms of capacity as well.

[00:17:03]Uh my second message I think is that the current financial architect uh be it globally, be it regionally or locally is not a designed to meet these frequent commodity crisis.

[00:17:21]They have been more designed to the liquidity crisis to manage this one.

[00:17:26]So, that is why this kind of crisis is leaving the space very limited, number one.

[00:17:32]Uh for example, if we see now your question that that what can be the options that I think the we need to decide and define what is fiscal discipline, how how we see fiscal discipline.

[00:17:46]Is it meeting the revenue targets from the uh fiscal banana of PDL?

[00:17:52]I mean, is this a fiscal discipline?

[00:17:55]To me, it is not.

[00:17:57]So, I think that is one message that need to go from this forum to the government.

[00:18:02]That while it's good to meet revenue targets, but at what cost?

[00:18:07]The PDL may bring you revenues at this point of time, but it has very very long-term consequences.

[00:18:15]Uh not only inflationary, even in terms of it discourage meaningful tax reforms because you have easy come uh money so to so so first message is what is the fiscal discipline.

[00:18:30]Uh that that we we we need to give this message.

[00:18:33]I think in terms of the government did two three things that I think should have been and could have been done a better way.

[00:18:42]The first one I think the first price hike uh was in a panic.

[00:18:48]And we discussed it.

[00:18:51]Uh that could have been a better approach and that I think set a panic in the market.

[00:18:57]Is one. And then the second mistake that we made was then delaying the pass on for next 3 4 weeks.

[00:19:06]We accumulated that uh sort of the the pass on the global price by some pass on.

[00:19:14]And then we increased both PDL and that pass on that we have accumulated. So, I think the the crisis governance could have been much better.

[00:19:24]And most probably we haven't had end up with the highest petrol prices in the region.

[00:19:30]Highest inflation in the region. So, government has to balance what it has to pass on. I think PDL.

[00:19:41]This was not a right time to increase PDL, particularly when you are meeting the already set target of PDL.

[00:19:49]I mean, now what we are raising is above and beyond the target that we have set.

[00:19:55]And this I think was done a way that let's not pass on today. So, we Last comment.

[00:20:02]Three things we have to balance whenever we think it to to to balance that what we told today and what we charge later.

[00:20:14]The one is what needs to pass on must be passed on.

[00:20:20]But what is just to fill the gaps of revenues, that should not be passed on to the consumer because it's bringing more inflationary pressures and growth and all others.

[00:20:34]Targeted reliefs.

[00:20:37]The relief that we are providing and I think I was on your show when I said that this inflationary pressure is affecting the people, even those who don't have any motorcycle.

[00:20:48]The relief that we have linked to the motor bike, that itself needs a reconsideration.

[00:20:55]But at the same time, I think my my last point is this does not mean to bring new finances.

[00:21:02]You just have to re-prioritize your subsidies.

[00:21:05]You have amounts for subsidies.

[00:21:08]How can you better re-prioritize those? So, back to you. Thank you, sir.

[00:21:13]You you I'm happy that you raised this point of uh fiscal stability and you uh segregated the issue of uh the prices that have to be increased and were increased. Uh to that point, everyone is okay. At least those who want fiscal stability. And the second part, which is not debated, but there is a growing focus on that point is if the FBR is not performing, so why to increase the petroleum levy beyond the point where the number that had been agreed with the IMF? I think no one is better than uh Dr. Khaqan Najeeb to answer this question. He has been in the Ministry of Finance. He has remained involved in reforming the FBR. He reformed himself, but he couldn't reform the FBR.

[00:21:54]So >> [laughter] >> So, Dr. uh Khaqan, if you could explain this uh this whole scenario. I mean, to this point, everyone agrees that the because of uh weak or no fiscal buffers that Pakistan has, uh prices have to be increased. But why to increase the petroleum levy? And why the FBR is burden passed on to the consumers?

[00:22:15]During the It's on. It's on. Bismillah Rahman Rahim. Assalamualaikum, everyone.

[00:22:24]I'm going to take this time to not only answer what Shahbaz has just asked me, but also a lot of pertinent questions that we've had throughout the day um and try and move on from there. First of all, this is not an IMF program.

[00:22:39]It is a Pakistan program supported by an extended fund facility of the IMF. So, let's stop thinking and keep calling this an IMF program. The LOI is signed by the authorities. Every word on the MEFP is negotiated by the country. So, let's take full ownership.

[00:22:57]Um it's dependent on a model that they run. The countries I help uh Pakistan's 1316 program I anchored um is home designed should be home designed and fully owned.

[00:23:10]So, that's one clarity.

[00:23:12]PDL was introduced instead of GST so that we did not have to share it with the provinces. That's what PDL is all about. So, let's have clarity on that as well.

[00:23:23]PDL in my opinion, when I was on the table, I always said is a counter-cyclical measure. When the oil prices go up, we maintain PDL at a lower rate.

[00:23:34]When the oil prices go down, we can enhance PDL and take it to a decent level. Nowhere in the world today do we run number of divisions whose coordination with each other remains weak.

[00:23:50]Number two, nowhere in the world do we run, and I'm an Australian-trained economist, they have a thing called Australian Energy Regulator.

[00:23:59]Pakistan runs two regulators who are not market makers, parking places for the people who leave government, and then they don't coordinate with each other.

[00:24:09]Number three, even within the government, and now I'm going to move to move to the fiscal side, you run a tariff differential subsidy.

[00:24:18]Hard calls are not about raising prices.

[00:24:21]Hard calls are about creating a competitive market. Here's your two cents for the next budget. Take the 400 billion out of the TDS. Let the tariff of Islamabad, Gujranwala, Multan, Sukkur be passed on to the consumer.

[00:24:39]So, that they compete with each other and bring it down to the NEPRA tariff.

[00:24:43]The NEPRA can't reprimand them because they are public sector, and the public sector is supporting through Dr. Nafisa Shah's tax money that 400 billion which has been done over the last years.

[00:24:55]You want to make the hard calls, so that's your policy hard call. Mhm. In the end, if you can't privatize them, which is very hard, the they have been on the privatization list for the last three decades.

[00:25:08]The Chinese model is that you let them compete with each other.

[00:25:12]And that you can only do if you take the besakhi on which you're letting them stand.

[00:25:19]The last thing that becomes truly important in Pakistan's case is the following.

[00:25:24]You cannot have transport run on fossil fuels, 85% of Pakistan's fossil fuel freight is carried.

[00:25:33]Where is your railway?

[00:25:36]Railway needs to carry the freight.

[00:25:38]Railway costs even today 1/3 less than carrying it on the roads of Pakistan.

[00:25:45]Fundamental choices have we made.

[00:25:48]Otherwise, Fahad, you can call me 5 years from today, you will hear exactly the same thing. And the reason I say that is the day I came on the table of Pakistan's government, I said exactly the same thing that I'm repeating to you today.

[00:26:02]Pakistan's energy sector problems are small but structural in nature. In the next 5 years, if you want to see in another changed energy sector, it is very much possible in the pathway, something that I've put forward that you can debate in front. That was all for today for the first session. We'll again continue our discussion of for tomorrow.

[00:26:22]And the the focus of our discussion in the tomorrow session will be whether Pakistan can have strategic reserves.

[00:26:29]Does Pakistan have enough fiscal space to build these strategic reserves or should look towards other countries to have those reserves in Pakistan. We'll also discuss whether the commercial reserves can be built and whether Pakistan's oil refineries can pay and can sustain the sustain the fiscal cost of building those commercial reserves.

[00:27:03]>> Mhm.