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PSO fulfills economic needs of Pakistan.

PSO's emergence on the economic scene of Pakistan resulted from national considerations of self-sufficiency in petroleum energy and effective control on storage, distribution and marketing of petroleum products, which are the back-bone of all economic and social development. It is fulfilling a great economic need. To have a better appreciation of the significance of the creation of PSO one has to, perhaps, turn the clock back to the partition era.

At the time of partition the total petroleum products requirement of Pakistan (both East and West) was 0.4 million tonnes and principally three foreign petroleum companies were marketing them namely Burmah Shell (British), Standard Vacuum Oil Company (American, which in 1962 became ESSO) and Caltex (American). Burmah Oil Company, Shell Petroleum and Attock Oil Company, all foreign companies, were principally engaged in oil and gas exploration although Burmah Oil Company also used to do some marketing but through Burmah Shell. Attock Oil was also in refining since it had discovered oil in Potohar and established a small refinery at Morgah near Rawalpindi under the name of Attock Refinery Ltd., to process the crude discovered by it.

In 1952 Burmah Oil Company discovered natural gas at Sui (Balochistan), Standard Vacuum Oil Co. (ESSO) at Mari (Sindh) and Shell Petroleum at Sylhet, Kailash Tilla (East Pakistan). But no oil was discovered, although in the adjoining countries oil was discovered in substantial quantities. All the petroleum products were imported by foreign marketing companies from their own sources on cost plus basis. The government got concerned, because in 1960 the requirement of the country shot up to 3.5 million tonnes against 0.4 million tonnes in 1947 and the annual growth in petroleum demand was recorded at 12-15 per cent annum. It was so because Pakistan did not have substantial alternate sources of energy. Even the coal discovered in Pakistan was of inferior quality and could not be used in locomotives. India had refused to supply coal for the Railways and the Railways had to be dieselised. In 1960 the USSR offered technical and financial assistance to the government of Pakistan for the exploration of oil and gas in the country. The government accepted the offer and as a result in 1961 Oil and Gas Development Corporation of Pakistan (OGDC) was established.

The USSR also offered technical and financial assistance for the establishment of an oil refinery with the only condition that Russian crude should be imported for the refinery. The government said that they would consider the Russian offer. At the same time the government though it appropriate to ask the foreign oil companies engaged in exploration and marketing in Pakistan namely Burmah Oil Co., Shell Petroleum, Caltex and Standard Vacuum (ESSO), to set up a refinery at karachi. Initially the response of the companies was negative. But when the government informed them that the Soviet Union was willing to offer technical and financial assistance for the setting up of a refinery at Karachi with the only condition that the refinery will refine Russian crude and the marketing companies will have to sell Russian crude products the companies reversed their decision and agreed to set up the refinery at Karachi with the following conditions: 1) The size of the refinery will be 1.5 million tonnes per year. 2) Sixty per cent of the equity and all of it in foreign exchange will be provided by the foreign companies and 40 per cent will be the local equity in Rupee currency. 3) The crude for the refinery will be brought in by the four participating companies from their own sources.

The government accepted the terms and the refinery was established at Karachi under the name of Pakistan Refinery Ltd., and their individual equity was as follows: ESSO 18 per cent; Burmah Oil Company 15 per cent; Shell Petroleum 15 per cent; Caltex 12 per cent. The government at the same time allowed Pakistan National Oil Ltd. (1964) and Dawood Petroleum Company Ltd. (1967) to the venture in petroleum marketing in Pakistan. During 1965 war with India the participating companies of PRL failed to bring in the much needed crude, but PNO was able to bring in.

The oil companies and refineries storages are located at Keamari. During the war with India in 1971, they were blasted by enemy action. The government wanted the oil marketing companies to dispense their storages from Keameri locate them in safer places on strategic grounds. The oil companies refused. Government itself decided to set up storages and incorporated a Company under the name of Petroleum Storage Development Corporation of Pakistan.

The energy crisis of 1973 developed a body of opinion throughout the world that oil being a very strategic commodity its operations should not be left entirely into the hands of private companies. As a result all the countries of the world except USA, incorporated a national oil company. Consequently the government of Pakistan decided to have a national company. But instead of establishing a new company, it nationalised PNOL and Dawood Petroleum on January 1, 1974. For reasons best known to it, the government changed the name of Dawood Petroleum to Premier Oil Company Ltd. In the meantime, ESSO decided to wind-up their business in Pakistan and requested the government permission to sell its oil marketing operations. They also offered their refining interest to the government. Government finally agreed to acquire ESSO's undertakings in Pakistan.

Since the stipulated sale of ESSO undertakings did not allow the government to use the name of ESSO, the government was in a fix where to vest ESSO's undertakings. The government changed the name of Petroleum Storage Development Corporation to State Oil and vested ESSO's undertakings into it. As a result PNOL, Premier and State Oil became public sector companies. On 30 December 1976 the government again changed the name of State Oil to Pakistan State Oil Company Limited and merged PNOL and premier Oil Company into it. Thus PSO came into being and became the largest marketing company of Pakistan and its emergence was the result of economic and political considerations of great national importance.
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Title Annotation:Pakistan State Oil Company Ltd.
Publication:Economic Review
Date:Oct 1, 1991
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