Pakistan oil industry SOS ahead of IMF meeting

Islamabad:

Cash-strapped Pakistan Petroleum has warned that the industry is on the “brink of collapse” as the dollar liquidity crisis persists and their operating costs soar due to the rupee’s depreciation.

The Pakistani rupee fell to an all-time low of 276.58 rupees in the interbank market after the government removed the dollar cap to meet the demands of the International Monetary Fund (IMF), Geo News reported.

The IMF set several conditions for the resumption of the bailout, including a market-determined local currency exchange rate and easing of fuel subsidies, both of which the government has implemented.

In a letter to the Oil and Gas Regulatory Authority (OGRA) and the Energy Ministry, the Oil Companies Advisory Council (OCAC) said the rupee’s “sudden depreciation” had caused losses worth billions of rupees to the industry as their credit The letter of credit (the letter of credit) is expected to settle at the new rate “while the related product has already been sold,” it said.

The government also restricted letters of credit due to dwindling reserves, which fell to $3,086.2 million as of January 27, just enough to cover 18 days of imports, the report said.

Pakistan is facing a balance of payments crisis, with the depreciation of its currency pushing up the prices of imported goods.

Energy accounts for a large portion of Pakistan’s import bill. The country typically uses imported natural gas to meet more than a third of its annual electricity needs, and gas prices spiked after Russia invaded Ukraine.

According to OCAC, these losses will affect not only the profitability of the industry — which is already under significant pressure — but also its viability, as in some cases these setbacks could outweigh “the industry as a whole.” annual profit”.

“Although LC allows up to 60 days of foreign exchange loss compensation under the ECC approval of April 1, 2020 using the PSO as a benchmark, our other member companies are unable to recover the full amount due to differences in import profiles with the PSO,” Geo News To quote OCAC.

OCAC told the authority: “If the viability of the industry and supply to retail outlets is to be ensured, this mechanism is urgently revised and the industry is fully compensated for exchange losses.”

The letter mentioned that the approach taken by OGRA is not to fully pass on the impact of the depreciation of the rupee, but to impose a huge burden on the industry.

With the industry still facing challenges with previous exchange rate adjustments, and the large impact of the current depreciation, OCAC said OGRA must pass on the impact of the exchange rate in one go, rather than staggering this compensation, the report said.

The committee added that due to the rise in oil prices and the continuous depreciation of the Pakistani rupee in the past 18 months, the trade finance limit provided by the banking sector to the industry has been insufficient.

Due to the recent devaluation alone, letter of credit limits have shrunk by 15% to 20% overnight, OCAC said.

“In order to ensure sufficient imports into the country, it is important to increase the industry’s trade finance/letter of credit limits in line with current oil prices, exchange rates and volumes handled by each company,” it said.

“If immediate action is not taken to address the above issues, the industry will be on the brink of collapse,” OCAC said.

Hours after the letter was sent, refinery Cnergyico informed the oil ministry that it would shut down operations for more than a week.

“Your office is hereby notified that the Cnergyico refinery will cease production from February 2, 2023 and will resume production from February 10, 2023, in line with our schedule for the arrival of crude tankers,” the statement added.

(Aside from the title, this story is unedited by NDTV staff and published via a syndicated feed.)