Refineries demand full recovery of forex losses

Draw govt’s attention towards forex burden, LC confirmation costs

ISLAMABAD:

Oil refineries have called on the government to make full recovery of the actual currency exchange losses and the confirmation cost of Letters of Credit (LCs).

Pakistan’s oil refineries are currently grappling with substantial currency exchange losses in the import of crude oil, compounded by a significant financial burden from the LC confirmation charges. They have requested the government to ensure the full recovery of actual exchange losses and LC confirmation costs.

In a letter sent to the Ministry of Energy, Petroleum Division, Cnergyico PK and Pakistan Refinery Limited (PRL) have drawn the government’s attention towards the oil refining industry’s struggle with substantial foreign exchange losses caused by the settling of LCs for crude oil imports.

They pointed out that the current pricing mechanism for petrol (motor spirit) and high-speed diesel only compensated for the exchange losses suffered by Pakistan State Oil (PSO) and it overlooked the losses borne by the refineries.

This discrepancy forces the refining industry to cover the financial gap by using its own resources, engulfing them in a challenging fiscal situation. In the letter, the refineries also highlighted the significant burden of LC confirmation charges, which the “current pricing mechanism fails to address”.

“This mechanism is aligned with prices of Pakistan State Oil, which doesn’t face such charges due to its exclusive crude oil procurement agreements that bypass the need for LC confirmation,” they said in the letter.

Consequently, the discrepancy places the refining industry at a financial disadvantage, as they are obliged to bear the substantial cost independently.

They appealed to the Ministry of Energy to consider the critical issues impacting an industry that met about 50% of Pakistan’s diesel and 25% of its petrol needs.

This development comes amid reports that the government is contemplating including exchange losses incurred by oil marketing companies (OMCs), other than PSO, in the regulated fuel prices to accept a longstanding request of the oil marketing industry.

Interestingly, the adjustment of the foreign exchange losses borne by OMCs was discussed at a meeting of the Oil Companies Advisory Council (OCAC) on March 19, but the proposal was ultimately rejected.

OCAC is an industry body that represents the major OMCs and refineries.

At the meeting, sources told The Express Tribune, Gas & Oil Pakistan (GO) raised concerns about the uneven recovery of exchange losses, which put certain OMCs at a disadvantage. It proposed a “pooled mechanism” for equitable loss recovery, which was supported by Cnergyico PK.

However, Attock Petroleum, having minimal foreign exchange loss exposure due to its association with Attock Refinery that processes local crude, opposed the idea. Attock Petroleum’s viewpoint was also backed by Be Energy, Hascol, Total, Parco and PRL.

Published in The Express Tribune, April 5^th, 2024.

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