Pakistan, IDB sign $4.5b oil deal

Three-year facility will provide financing for oil and gas imports

ISLAMABAD:

Pakistan and the Islamic Development Bank (IDB) on Monday signed a $4.5 billion framework agreement for a commercial loan to finance oil and gas imports amid only 55% utilisation of a similar three-year facility.

The International Islamic Trade Finance Corporation (ITFC) signed the three-year framework agreement for a cumulative amount of $4.5 billion with Pakistan in order to provide financing for the import of essential commodities such as crude oil, refined petroleum products, LNG and urea, the Ministry of Economic Affairs announced.

Jeddah-based ITFC is the financing arm of the IDB for trade activities. The financing will help Pakistan meet energy requirements for the period 2021 to 2023. It will allow the country to finance vital imports of crude oil and refined petroleum products. The fresh facility has been obtained at an average rate of London Interbank Offered Rate plus 2.5%, said the sources. The previous three-year facility had been drawn at Libor plus 2.5% to 2.75%.

Under the umbrella framework agreement, separate commercial agreements will also be signed that will determine the exact interest rate.

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However, the government could not take full advantage of the 2018-2020 similar facility. Only $2.5 billion or 55% could be utilised against the $4.5 billion facility, said an official of the Ministry of Economic Affairs. The government could utilise on an average $833 million as against the annual financing envelope of $1.5 billion.

The ministry blames the Covid-19 outbreak and low oil prices for the lack of utilisation of the facility. The country imported $8.5 billion worth of petroleum products including gas during the 11-month period (July-May) of current fiscal year, according to the State Bank of Pakistan (SBP).

Last week, the government also announced a Saudi oil facility of $1.5 billion per annum on deferred payments, which was half the amount that Saudi Arabia had given in November 2018 under a three-year agreement. But the three-year facility was prematurely terminated within the first year.

Payments against oil imports are settled overseas, which takes off the pressure from the rupee in the inter-bank market. The rupee has also come under pressure in recent days and is being traded around Rs158 to a dollar.

Within the context of its trade-integrated solutions approach, the framework agreement also covers ITFC’s support for trade-related technical assistance projects in Pakistan, which will be selected jointly by both the parties according to the national economic priorities and development plan of Pakistan, said the ministry.

It added that the agreement would facilitate identification of other areas of cooperation at country and regional levels and enhance and promote trade, trade capacities of relevant state authorities and financial institutions and trade cooperation in Pakistan.

The signing took place virtually where Minister of Economic Affairs Omar Ayub Khan witnessed the signing between ITFC CEO Hani Salem Sonbol and Ministry of Economic Affairs outgoing Secretary Noor Ahmed. The financing available through this facility will be utilised by Pakistan State Oil (PSO), Pak-Arab Refinery Ltd (Parco) and Pakistan LNG Ltd (PLL) for import of crude oil, refined petroleum products and LNG during the years 2021-2023.

Referring to the agreement, Sonbol stated that the framework agreement reflected the importance of longstanding cooperation between the ITFC and the government of Pakistan.

“ITFC is continuously working closely with its member countries to meet their requirements by providing integrated solutions that include financing and capacity building tools that allow for maximising the development impact of ITFC interventions.”

Published in The Express Tribune, June 29^th, 2021.

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