In a bid to win much-needed financing, the sources said, the government was considering giving sovereign guarantees to the lenders, which would eventually be an obligation to meet. DESIGN: ESSA MALIK
With just $3 billion in hand that can finance imports for only three weeks, Pakistan has been struggling to secure a $500 million oil financing facility in an effort to keep cars running on roads, as reduced gas supplies for transport vehicles are likely to increase the demand for fuel imports.
The government has launched two separate bids to arrange $400 to $500 million for oil imports for a short term of one year, one with a consortium of banks led by Standard Chartered Bank and the other with the International Finance Corporation (IFC), a member of the World Bank Group, according to finance ministry sources.
However, none was close to the point where a deal could be struck to ensure uninterrupted oil supplies in the months ahead, the sources revealed.
Under the previous IMF programme, oil imports must be financed from the interbank market, instead of the State Bank of Pakistan. However, the interbank market is facing a dearth of dollars, forcing the Ministry of Finance to intervene and ask the State Bank to provide the greenback.
On November 29, foreign currency reserves held by the SBP dropped to $3.05 billion while reserves with commercial banks stood at $5.1 billion. Setting aside the forward contracts under which the central bank has borrowed $2.2 billion, its net reserves were less than $1 billion.
Gas supplies to the compressed natural gas (CNG) stations could be suspended for two to three months, which will increase the oil import bill by at least $500 million for the period.
In a bid to win much-needed financing, the sources said, the government was considering giving sovereign guarantees to the lenders, which would eventually be an obligation to meet.
Talks for getting $400 million oil financing from Standard Chartered Bank had not made any headway as the bank was demanding an interest rate of 5.10% compared to government’s offer of around 4.5%, the sources said.
Talking to The Express Tribune, finance ministry spokesman Rana Assad Amin acknowledged that there had been no progress so far on securing the $400 million oil financing facility from Standard Chartered Bank, saying that they were looking for other options.
The government had already received $100 million for balance of payments’ support from a consortium of banks, led by Standard Chartered, and expected to receive another $125 million soon, said Amin.
According to sources, the $225 million has been arranged at 5.45% interest rate.
During the previous PPP-led government, Standard Chartered Bank had offered $300 million in oil financing for a period of six months. Former interior minister Rehman Malik, according to sources, wanted that deferred oil supplies should be brought through Trafigura – a privately held company that deals in oil. But the then economic managers did not agree.
Furthermore, in return for oil financing, the bank was seeking to route remittances through its network. But the government turned down the demand.
According to a senior official of the finance ministry, Pakistan is currently negotiating with the IFC to secure a $500 million oil financing facility. Two commercial banks are also ready to lend $500 million for oil imports.
However, things are not as simple as claimed by mandarins of the finance ministry. The IFC would not directly lend to the government as it has a mandate to deal with the private sector only, according to an official of an international lending agency.
The IFC is considering lending $500 million to a commercial bank, which will then give it to the government. Talks were still at an initial stage and not near the approval phase, he said.
In a meeting with Finance Minister Ishaq Dar, the IFC’s top management had assured him that the agency was willing to scale up its loan for the private sector.
Published in The Express Tribune, December 7th, 2013.
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