Oil stocks feared to dry up

The Petroleum Division has warned the central bank that the stocks of petroleum products may dry up as banks are refusing to open and confirm Letters of Credit (LCs) for imports.

Like other sectors, the oil industry in Pakistan is facing hurdles to opening LCs owing to the US dollar shortage and restrictions put in place by the State Bank of Pakistan (SBP).

An oil cargo of Pakistan State Oil (PSO) has already been cancelled while LC for another cargo, scheduled for loading on January 23, has not yet been confirmed.

In a letter to the SBP governor, the Petroleum Division drew his attention towards the difficulties being faced by oil refineries and marketing companies in establishing the LCs.

According to sources, Pak Arab Refinery Limited (Parco) has planned to import two crude oil cargoes of 535,000 barrels each but banks are not willing to open and confirm the LCs.

One crude oil cargo of 532,000 barrels for Pakistan Refinery Limited (PRL) is scheduled for loading on January 30. However, its LC has not so far been confirmed and it is being negotiated with a state-owned bank.

Two petrol cargoes of PSO, which are in the pipeline, are also awaiting the confirmation of LCs by local banks.

According to industry players, 18 cargoes of petrol booked by other oil marketing companies (OMCs) like GO, Be Energy, Attock Petroleum, Hascol Petroleum and others also require the opening and confirmation of LCs.

To tackle the situation, a series of meetings have been held since the second week of January.

First such huddle was convened on January 13 that highlighted the banks’ refusal to open LCs in favour of OMCs and refineries for the import of crude oil and petroleum products.

In this regard, another session was organised on January 17, which was chaired by the petroleum secretary and attended by the representatives of OMCs, refineries, Oil Companies Advisory Council (OCAC), SBP, Finance Division and Oil and Gas Regulatory Authority (Ogra).

As decided in that meeting, details of the pending and outstanding LCs, which were immediately required to be established during the current month, were shared in a subsequent huddle on January 18, attended by the relevant stakeholders.

It agreed that the SBP would look into the issue and give its response to the issue of outstanding LCs in a meeting to be held the very next day.

Petroleum Division additional secretary chaired the sitting, which was attended by DG (oil), Ogra chairman, PSO managing director and SBP representatives.

Central bank officials pointed out that Pakistan was facing a severe liquidity crunch, which included the SBP and commercial banks, which was why LCs were being delayed.

The Petroleum Division underscored the need for taking energy conservation measures to minimise consumer demand.

On the occasion, PSO MD revealed that its Mogas (motor gasoline – petrol) cargo, scheduled for loading on January 13, had already been cancelled owing to the delay in opening LCs. For another cargo too, which was slated for loading on January 23, banks were reluctant to open LCs, he added.

“Country has limited oil stocks and such a situation can result in drying up of inventory,” said the DG oil. It was decided that the SBP may formally send its reply to the shared list of immediately required LCs, so that the issue could be taken up at the highest level, ie with the SBP governor and the finance minister.

“State Bank is requested to furnish its reply to the status of LCs required to be opened,” said the DG oil. He requested the SBP governor to take appropriate decisions, adding that if it was not able to provide support, the matter may be brought to the attention of finance minister and Prime Minister’s Office.