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A Challenging market

Times are difficult for Pakistan’s bunker suppliers but the 2020 global sulphur limit may prove a boon to the country’s marine fuel sector

Pakistan has always been a challenging market, but as a nation fighting to establish itself

as a viable bunkering location in a fiercely
competitive part of the world with major bunkering hubs at either end of the principal trade routes serving its ports, the energy

sector struggles of recent times have

made the country a particularly difficult

place to do business.

Orion Bunkers’ Zeeshan Arshad told World Bunkering: “The market as a whole is not doing well. Volumes are extremely low and it is a threat. We are going with the flow [when it comes to coping with depressed prices]. Therefore, we haven’t been affected much when crude went bananas. But of course low oil prices put stress on margins. Therefore, we are working calmly to survive in the down era of oil.”

 

Pakistan’s government has been pinning its hopes on inward investment from China under the China-Pakistan Economic Corridor, with funds earmarked for all three of the country’s main ports.

Orion itself, which Arshad said continues to hold 75% of the country’s bunker market, has been watching developments in Gwadar with an eye to launching operations there.

 

The port isn’t ready yet, though. “We have done our research on Gwadar Project, however the export/import trade has not started properly yet, only 1–2 vessels calling a month, so we still have to wait for the port to become fully operational, when heavy vessel traffic will allow us to start bunkering in Gwadar,” Arshad said.

 

“Of course, it’s not only Gwadar [getting Chinese investment],

but also the construction of berths is underway at Port Karachi

and Bin Qasim. So yes, we are definitely witnessing movement in

all three ports. Vessels would not have to wait as much in queues

due to the increased number of berths therefore it would be another point of interest for vessel owners to set these three ports as favorite for fast cargo work to save time, and enjoy low port tariffs and

cheap bunkers.”

For a long time, though, the main impediment to Pakistan’s bunker market growing significantly has been the local availability of higher viscosity fuel grades. Pakistan lacks a refinery producing 380 cSt HFO, and this automatically drives operators running on heavier fuel elsewhere. However, with the global sulphur cap coming in a couple of years, not to mention other putative environmental measures, the playing field could potentially level somewhat as demand shifts to lighter grades.

 

“380 cSt has remained an issue with suppliers in Pakistan, as refineries are not upgraded to produce 380 cSt within Pakistan,” Arshad said. “However, Orion has raised the issue with government and private refineries to produce or import 380 cSt. Hopefully we will have positive feedback.”

 

“We already have started offering 0.1 % MGO DMA as per our clients’ requirements. Moreover, we will be offering all low-sulphur products to facilitate our clients’ needs. Ultimately Pakistan’s suppliers will get their reward as vessel owners will be able to get the same product not only in Fujairah or Singapore but in Pakistan too, with competitive prices and exceptional services.”

 

It’s this lack of 380 cSt that’s driven volumes down in recent months, he said. “With our instinctive research, we came to know that most of our volume has been taken by Fujairah, Colombo and a few Indian ports due to the availability of 380 cSt there. But we are doing our best to compete on following product with other ports. So since last summer we have faced the issue of low market volumes.

However, we can overcome this very soon if we remain competitive and sell bunkers as cheaply as our neighbours’ ports do.“

Hambantota Haggling

The future of Sri Lanka’s newest port still needs to

be settled but elsewhere the story is of steady progress

 

It’s largely been business as usual at Sri Lanka’s current major bunkering ports of Colombo and Trincomalee, where Lanka IOC reported volume sales growth of 20% last year. However, it’s the Sri Lankan government’s ongoing attempts to revitalise Hambantota that represent the biggest potential shifts in the country’s bunker scene.

 

Bunkering at the port was finally put out to open tender last summer following the failure of the Sri Lankan Ports Authority’s own attempted bunker offering. This was followed by discussions between the Sri Lankan government and Chinese investors, who had already propped up the vast port development following construction delays, cost overruns and dismal early traffic to the reported tune of US$1.5 billion.

 

The negotiations with China involved not only the port but also the planned economic zone around it in the form of a US$1.4 billion joint venture, specifically including bunkering, which led to violent protests at the end of last year from locals afraid of the area due to be acquired for the zone becoming “a Chinese colony”. In local press, Sri Lankan prime minister Ranil Wickremesinghe said the deal was necessary to clear the debt incurred in building the port, debt he blamed on former president Mahinda Rajapaksa, but also said that the port would be leased to investors rather than sold to a foreign power.

 

The framework agreement between the Sri Lankan government and China Merchants Port Holdings (CMPort) was signed in December last year, with CMPort having an 80% stake in the joint venture and the SLPA the remaining 20% on a 99-year lease. The joint venture would control lube supply, bunkering, pilotage and navigation, storage, power and other services. It also included a ban on further port evelopments within 100 km of Hambantota for fifteen years or until the port achieved 50% utilisation.

 

According to a cabinet memo released this spring, the second draft of the concession agreement “… contains more unfavourable conditions than that of the first document – e.g. including the condition that that the public-private partnership operator or any of their nominees shall be permitted to exclusively carry out Port/terminal development activity within 50 kilometres from the centre of the Hambantota Port during the entire lease period.”

 

But then the government announced it would renegotiate at least some of the deal a month later in the teeth of mounting objections

and an eight-day port strike. A few days later, local press reported

that prime minister Wickremesinghe told the Sri Lankan parliament that the first new investment in the new Hambantota economic

zone would be Sri Lankan in the form of a new cement plant,

but that China had pledged to build an oil refinery, LNG plant,

dockyard and another cement plant in the port, and that the government was in discussions with companies from the US

and Middle East to build another oil refinery.

 

According to a new draft of the agreement revealed by Reuters in March, CMPort would agree to divest up to 20% of its stake to a Sri Lankan company after ten years. Ranga Kalansooriya, head of the government’s Information Department, was quoted in the India Times as saying: “There were some concerns about ownership. We were able to negotiate with the Chinese company successfully. The Chinese firm said they want the controlling share…even if it was 51%.”

 

If Hambantota can be made to work, and if the vast investment there can finally bring in enough traffic and enough of a bunker market, the benefits could be huge. The path to getting there, though, has been less than smooth.

Prime Minister Wickremesinghe’s negotiations with China over Hambantota have sparked huge controversy

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