Refineries demand more financing

Bank credit limits have stayed unchanged despite rupee fall, high oil prices

ISLAMABAD:

 

The Oil Companies Advisory Council (OCAC) has approached the State Bank of Pakistan (SBP), asking it to enhance the provision of trade financing to meet working capital requirement of oil marketing companies (OMCs) and refineries as rupee depreciation and rising oil prices have impacted their finances.

The request comes in the backdrop of geopolitical tensions in Europe and the Middle East, which have led to a significant surge in crude oil prices in the international market.

In a letter to SBP Governor Dr Reza Baqir, the OCAC – a lobbying group of OMCs and refineries – pointed out that due to lockdowns in various countries and supply chain disruptions, coupled with a tense geopolitical situation in Europe and the Middle East, the international oil prices were projected to increase in the coming months.

“We write with reference to the critical issue of availability of financing facilities from commercial banks to various oil marketing companies and refineries,” OCAC Secretary General Dr S Nazir Abbas Zaidi said.

According to industry officials, bank limits on financing facilities have remained unchanged for the past many years, which has made it difficult for the OMCs and refineries to breathe life into their operations.

Not only the dollar has risen to all-time highs against the rupee, but also crude oil, which traded roughly around $52 a barrel some time ago, is now hovering above $80.

Banks have disregarded the two key factors and have kept the financing limits at the same level, they pointed out.

The industry officials suggested that banks should link their financing limits to the number of barrels each company was using as the linkage to the capacity and output would further incentivise the ailing sector.

Banks should revisit the financing limits, especially for the private refineries, the same way they do for other industries, since it is a high volume, low margin sector and gets affected directly by the rupee-dollar parity and rising oil prices, they said while talking to The Express Tribune.

In the letter sent to the SBP governor, the OCAC secretary general gave detailed reasons for the enhanced financing requirement of the entire oil sector.

During 1HFY22, sales of petroleum products in the country increased 24% as compared to the same period of last year. Among these products, the consumption of motor gasoline (petrol), high-speed diesel and furnace oil went up 14%, 27% and 38% respectively.

The growth is primarily attributed to the surge in economic and trade activities, growth in large-scale manufacturing, higher diesel demand from the agriculture sector, robust growth in automobile sales, rising local tourism and reliance on some furnace oil-based power plants due to increase in electricity generation.

Owing to the limited refining capacity in the country, the additional demand for petroleum products is being met through imports. In FY21, OMCs imported 10 million tons of petroleum products valuing at $4.8 billion.

“Working capital requirements of OMCs and refineries are increasing on the back of rupee depreciation, increase in international oil prices and increase in local demand,” the OCAC secretary general said.

Published in The Express Tribune, February 3^rd, 2022.

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