Shortfall: Rs5.34b was the deficit in the payment account on April 30 this year. CREATIVE COMMONS
The government is likely to stop importing oil from Kuwait on credit following billions of rupees worth of losses because of continuous depreciation of the rupee against the dollar.
“In order to avoid a huge financial burden on the national exchequer, it needs to be contemplated whether to discontinue this credit facility and direct PSO to arrange dollars on its own for direct payment to KPC (Kuwait Petroleum Company) as is being done in the case of other petroleum products,” an official said quoting a plan proposed by the petroleum ministry.
Officials say the issue has been taken up several times with the budget wing of the Finance Division for releasing necessary funds to make up for the rising losses related to the currency exchange rate. However, before the release of any funds, the budget wing insisted on verification of the losses suffered in 2009 and 2012 by the petroleum ministry or a third party.
According to the deferred payment facility provided by Kuwait, Pakistan State Oil deposits the money for oil supply in an account on the 30th day from the date of the bill of lading and the amount is kept in this interest-bearing account for 30 more days. Payment is made to KPC on the 60th day of the bill of lading depending on the exchange rate for the rupee and dollar on that day, say sources.
This credit facility worked smoothly and satisfactorily until the exchange rate was stable. However, since the unprecedented weakness in the rupee, the account at the National Bank of Pakistan (NBP) has fallen short of the required amount because of exchange losses. This has led to the provision of exchange cover for a smooth operation of the account, to ensure timely payments to Kuwait and avoid default.
The deficit in the account stood at about Rs4.04 billion on February 1, 2012 and increased to about Rs5.34 billion on April 30 this year.
Though payments to KPC have never been disrupted due to timely deposits by PSO after 30 days from the date of bill of lading, PSO was about to default in February 2012 had the facility not been extended by the government of Kuwait for 2012, the official said.
Last two payments for the year ended December 31, 2011 could only be made after the facility was extended on February 24, 2012.
“The same problem occurred in February this year. In view of fluctuations in the exchange rate, this shortfall is likely to increase in the future,” the official said, adding oil marketing companies (OMCs) were facing losses.
The petroleum ministry, in its plan which has been sent to the finance ministry, suggested that the Finance Division may advise PSO to deposit the rupee equivalent of dollars to be paid to KPC based on the selling rate given on the first rate sheet of NBP on the 30th day from the date of bill of lading.
At present, PSO is depositing the amount based on the State Bank of Pakistan’s weighted average exchange rate (selling) for future as per central bank’s instructions issued on July 15, 2009 for arranging foreign exchange from the interbank market.
The ministry further suggested that the Finance Division may ask NBP to waive service changes over and above the SBP’s rate up to 2 paisa at least. The Finance Division may also advise NBP to raise the interest rate to 10% in future.
“The situation where the exchange loss has been added to every remittance, it is recommended that the Finance Division arranges the shortfall through some supplementary grant … because any delay in making payment on account of exchange loss will cause further financial burden on the government exchequer,” the ministry said in its plan.
Published in The Express Tribune, October 2nd, 2013.
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