Reliance on foreign oil suppliers threatens industry

OCAC rejects notion of forex savings, fears repercussions for overall economy

ISLAMABAD:

The Oil Companies Advisory Council (OCAC) has cautioned the government that imports on foreign suppliers’ account through the customs bonded storages pose a significant threat to the local refineries, leading to potential economic repercussions not only within the oil industry but also for the overall economy.

In a letter sent to State Petroleum Minister Musadik Malik, OCAC Chairman Waqar Siddiqui highlighted the concerns raised by the oil industry.

“We firmly believe that its implementation will have severe ramifications for the sustainability and freedom of the country’s oil supply chain, ultimately leading to the destruction of the industry,” he said. “Unfortunately, the Ministry of Energy (Petroleum Division) has not yet responded to our concerns.”

Discussing the exposure to foreign payments, the oil industry lobby said that the proposal was based on the understanding that it would lead to foreign exchange savings but it was not correct.

According to the guideline, the remittance will not be allowed at the time of imports, however, the impact of forex flowing out of the country will still be there as under the current practice all importers have to transfer foreign exchange based on the terms of supply, for instance within 30 days from the Bill of Lading, and as such there would be no positive impact on forex reserves of the country.

It pointed out that the proposed guideline failed to recognise that products stored under such arrangements were not considered as imported products, and the ownership of those products remained with the foreign suppliers.

“This misconception could significantly jeopardise the country’s strategic interests and result in an excessive reliance on foreign suppliers, who may prioritise commercial interests over those of Pakistan,” the OCAC said.

In that scenario, it stressed, the substantial investments made by refineries would go to waste, discouraging the future flow of capital into the development of the sector.

The oil industry association also cautioned that the existing importers were already grappling with the extended waiting periods, especially during the agricultural sowing season.

“Implementing this arrangement will exacerbate the challenges faced by importers, as import and export activities by foreign suppliers would have to be accommodated within the current port infrastructure.”

It believed that without the development of additional jetties, such an arrangement would not be feasible and contribute to port congestion.

Pakistan’s storage facilities at the port are currently operating at the maximum capacity, ensuring coverage for only 20-24 days. Allowing foreign suppliers to bring imports without expanding the storage capacity would not enhance the overall fuel reserves, the OCAC said.

Instead, it would compromise the existing reserves as they would be occupied by foreign companies, further undermining the country’s fuel stock dependency.

It requested for an urgent meeting with the industry members to arrive at an amicable solution and avoid litigation.

Published in The Express Tribune, June 28^th, 2023.

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