ISLAMABAD/LAHORE: Pakistan State Oil (PSO) has warned the government of limited stocks of POL products amid non-opening of letters of credit (LCs) for cargoes, arguing the prevailing situation could lead to a dry-out, an industry official told The News on Friday.
The state-owned oil marketing company (OMC) also told the top government functionaries that it had to cancel its Mogas cargo, which was scheduled to be loaded on January 13, 2023, due to non-opening of LCs. Another cargo is to be loaded on January 23 for which also banks are not opening LCs.
“The PSO MD disclosed this in a meeting held on January 19 with the secretary petroleum in the chair. The meeting was attended by DG Oil, OGRA chairman and representatives of the State Bank of Pakistan,” a senior official of the Energy Ministry told The News.
To avert an impending dry-out in the country, he said, the director general (DG) Oil on the same date had written a letter to Governor State Bank of Pakistan (SBP) for immediate opening of prioritised 32 LCs of refineries (PARCO, PRL) and oil marketing companies (PSO, GO, Hescol, BE, TAJ, PUMA, APL, EURO and Flow) to ensure import of crude oil and petroleum products.
As per the letter, the DG has first recommended 23 LCs for the import of crude oil and Mogas to the SBP for immediate action. Under the second priority, 5 LCs for the import of high speed diesel have been recommended. Four LCs for import of lubricants were also proposed to the central bank.
The letter also mentions that in the Petroleum Division, three meetings were held, where the SBP representatives said the country was facing severe liquidity issues, including commercial banks and the central bank, and as a result LCs were being delayed.
In the meetings, it was decided that the SBP might formally send their reply to the already shared list of immediately required LCs, so that the issue could be taken up to the SBP governor as well as the finance minister.
In this connection, Oil Marketing Association of Pakistan (OMAP) has also asked SBP Governor Jameel Ahmad to intervene in the matter of LCs for import of refined petroleum products to avoid severe fuel crises in the country.
OMAP Chairman Tariq Wazir Ali requested a meeting on the issue with Ahmad, asking him to play a role in avoiding any such fear being hand in hand with the central bank. “Kindly pay attention, immediately intervene & take the matter up with the concerned authorities so any threat of imminent fuel crisis may be curbed & avoided in an efficient manner,” Ali wrote to Ahmad.
Ali also warned that if LCs were not established within a set timeline, imports would greatly be impacted and might lead to a severe shortage of petroleum products and consequently a crisis in the country, also threatening the country’s strategic defence and logistic movement.
He further observed that member companies of OMAP were facing challenges in opening LCs for import of refined petroleum products into Pakistan. “Due to their nature, import contracts and confirmed LCs are a prerequisite of doing business in our sector but unfortunately due to low foreign exchange reserves, the central bank has advised banks to do rationing on new LC opening,” he wrote.
The OMAP chairman further noted that Pakistan’s monthly cost for import of petroleum products was approximately around $ 1.2 billion to meet the energy needs of the country. The challenges in opening and confirmation of LCs were causing delays in import of various cargoes.
“Until now the situation is somehow managed with the supervision of relevant authorities, however, in the current situation, we fear that conditions are turning from bad to worse. As banks decline opening LCs, this is drastically shrinking the working capital of OMCs.” According to the first prioritised list by the DG Oil, PARCO needs the establishment of LCs for the import of two cargoes each having 535,000 barrels from ADNOC, one on January 13 and the other one on January 19. PRL also needs the opening of LC for the import of 532,000 barrels of crude oil on January 30-31.
OMCs like PSO need the immediate establishment of LCs for the import of two cargoes with each having 50,000 MTs of Mogas, one on January 17 and the other one on January 26. GO needs the opening of 6 LCs for the import of 6 cargoes having Mogas and BE needs the establishment of 4 LCs for the import of Mogas, TAJ needs two LCs and PUMA one LC, HPL two LCs, APL one, Flow one LC for the import of their respective Mogas cargoes.
Under the second priority list for import of HSD, OMCs such as TAJ needs the opening of LC for import of HSD of 4,000 MTs on February 4, 2023, and GO needs to establish three LCs for import of three cargoes having HSD on February 25-27. The third priority highlights the import of lubricants. PSO needs to establish LCs for the import of three cargoes on March 30, May 25 and May 20, and EURO is required to open LC for the one cargo of lubricants, which has already arrived. It may be noted that unannounced curbs have been imposed on imports with a view to curtail the demand of foreign exchange. As liquidity crunch in view of debt requirements intensifies, commercial banks have refused to provide US dollars on government controlled rates, virtually adding fuel to fire when it comes to mitigating liquidity crisis.
In such a dire situation, according to market insiders, shortages of numerous items including commodities, raw material for manufacturing units to medicines have been witnessing with no light at the end of tunnel as yet.