KARACHI - Volumetric sales of refineries in second month of FY09 witnessed a decrease of 10 percent Year-on-Year, mainly due to higher imports of POL products in Jul-08. The higher imports in the previous month contributed to inventory stock builds, thus reducing refineries off take. Cumulative sales for the six refineries currently operating in Pakistan stood at 1.56 million tons during 2MFY09 against 1.73 million tons last year. Due to the inventory stock builds of refineries, the government is laying increased emphasis on the OMCs to ensure that the local refineries production is uplifted prior to imports of POL products by the OMCs. This is mainly being done in order to save the country's precious forex reserves which have been dwindling at an alarming rate (currently USD8.91bn), analysts observed. Government of Pakistan is also stressing on all concerned parties to conduct demand/supply projections in a prudent manner in order to minimize variations within a range of 5%-10%. Except for the JP-8 grade, all POL products suffered volumetric sales decline as inventory builds due to higher OMC imports in Jul-08 adversely affected refineries product offtake. Refineries POL supplies were also affected by the irregular pattern of product uplift which created storage problems. The ongoing issue of circular debt in the oil chain seems to be weighing down on product off-take as well, as OMC product uplift from the refineries was affected by non-payments from the IPPs which further aggravated the refineries inventory stock builds. Another factor which adversely affected refineries was that the importing OMCs have a priority to pay for their LCs (Letter of Credit) which negatively affects payments to refineries. As a consequence of which, refineries find it difficult to promptly open LCs for import of crude oil. Goods transporters strike during Aug-08 also contributed to the fall in product uplift. The industry's Motor Spirit (MS) supply fell by 16 percent in 2MFY09 mainly due to supply falls from all the refineries except PARCO, which offset the fall in supply as it posted a huge increase of 404 percent Year-on-Year in 2MFY09, representing 57% of the total MS share. Formula change of MS was the main reason behind the reduced production of the grade by the refineries. Kerosene supply fell by 7% YoY in 2MFY09 mainly due to a high base effect from Jul-07. HSD supplies remained relatively stagnant with a slight fall of 2% as improved yields and high demand kept an upward pressure. NRL's HSD volumes improved by 1.8% YoY to 131 tons while that of PARCO increased by 80% YoY to 232k tons in 2MFY09 mainly due to improved yields. The combined share of NRL and PARCO in HSD volumetric sales improved by a healthy 18pps in 2MFY09 to 60% (NRL 22%, PARCO 38%). Furnace Oil (FO) supplies fell by 13% YoY to 520k tons as high FO prices took a toll on consumption. POL supplies of Pakistan remain highly dependent on imports as local refineries supplied 773 tons, 57% of total supplies in Aug-08. Approximately half of the demand for HSD and FO of the country is met through imports - 48% for HSD and 51% for FO in Aug-08.