KARACHI: The country’s oil sector has called for the immediate intervention of the federal government to suspend Fauji Oil Terminal & Distribution Company Limited’s (Fotco) unilateral imposition of flow-rate penalties on oil companies and their import/export vessels, effective from January 1, 2026.
The Oil Companies Advisory Council (OCAC) raised the issue in a letter to the Director-General Oil, Petroleum Division, noting that such unilateral enforcement, without any legal or contractual basis, constitutes disproportionate commercial leverage arising from Fotco’s position as the port terminal operator.
The OCAC warned that the penalties would impose significant and unsustainable financial burdens on oil marketing companies (OMCs), particularly at a time when margins have remained stagnant for more than two years. Under the current margin structure, OMCs are unable to absorb unjustified penalties, especially those arising from constraints linked to the pending case regarding the construction of a separate TDL by Fotco.
The council cautioned that if OMCs refuse to accept such penalties, vessels could remain at outer anchorage, risking supply-chain disruptions. Prolonged waiting times would lead to cascading delays, increased demurrage costs, congestion at port approaches, and potential product shortages, forcing companies to divert vessels to Karachi Port Trust as a last resort.
The OCAC highlighted that the industry is already incurring substantial operational and financial costs due to repeated pigging operations required by the use of a single common line for both MS and HSD at Fotco. These operations result in time losses and additional handling costs, which are currently borne by OMCs. The proposed penalties, it said, would exacerbate existing inefficiencies rather than address the root cause.
The council also warned that unilateral penalties could deter reputable international suppliers from offering cargoes to Pakistan or lead to higher risk premiums, increasing the cost of petroleum imports. Achieving the stipulated flow rates would require significant capital investment by individual terminals for pipeline, pump, and mechanical system upgrades, which is impractical given the layout and elevation of several decades-old facilities. In contrast, a dedicated MS pipeline at Fotco, repeatedly promised since the 2021 tariff revision, remains unimplemented, representing a systemic and cost-effective solution.
“Most critically, this development undermines national supply-chain objectives. The OCAC and Papco have been working with the government to increase MS throughput through WOP to 70 per cent of imported volumes. The imposition of punitive and uncertain costs at FOTCO will inevitably divert future cargoes to Karachi Port, reducing WOP utilisation, defeating the national mandate of pipeline optimisation, and increasing costs for end consumers,” the letter stated.
The OCAC stressed that the current situation sets a harmful precedent, allowing a terminal operator to impose penalties across the downstream sector through unilateral notifications, without regulatory approval from the Ministry of Energy or alignment with national energy-security objectives.
The council has sought the Petroleum Division’s intervention to engage the Ministry of Maritime Affairs, directing Fotco to suspend and withdraw the flow-rate penalties and ensure no charges are imposed on OMCs, refineries, or their vessels. It also requested facilitation to resolve the underlying constraint through the implementation of the dedicated MS pipeline, which remains the most efficient and equitable solution.
