Line extension: Pakistan looks for $10 billion oil credit facility

Published: February 11, 2014
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Saudi Arabia provides over 10,000 barrels of crude oil per day to Pakistan’s refineries. Annual crude import bill is around $7.5 billion. PHOTO: FILE

Saudi Arabia provides over 10,000 barrels of crude oil per day to Pakistan’s refineries. Annual crude import bill is around $7.5 billion. PHOTO: FILE

ISLAMABAD: 

Pakistan is seeking a long-term oil credit facility valuing about $10 billion from major oil suppliers Saudi Arabia and Kuwait, a move that comes in the backdrop of weakening foreign currency reserves and rising circular debt in the energy chain.

According to sources, the government has approached Saudi Arabia through diplomatic channels, asking it to extend the credit facility for oil supply from the existing 30 days to one year. The matter was taken up during the visit of Saudi Foreign Minister Saud Al-Faisal to Pakistan in the first week of January.

At present, Saudi Arabia provides over 10,000 barrels of crude oil per day to Pakistan’s refineries. Annual crude import bill is around $7.5 billion.

Apart from Riyadh, the government has asked Kuwait to allow it to defer payments for oil purchase from the current 60 days to six months in an attempt to build the country’s foreign currency reserves.

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Annual oil purchases from Kuwait cost around $2.5 billion. The existing deal with Kuwait is going to expire in the next six months and negotiations are under way for a fresh one.

“We have placed a request before the Kuwaiti government for extending the oil credit facility to six months and its response will be known after further negotiations,” a senior government official said.

Pakistan is asking for enhancement in the oil credit facility from other countries as well. Finance Minister Ishaq Dar took up the issue with the UAE government during a recent trip, asking them to extend the existing 30-day period, the official added.

The previous Pakistan Peoples Party-led coalition government had also tried to persuade Saudi Arabia to increase the oil credit ceiling to one year, but Riyadh gave Islamabad the cold shoulder.

In addition to the higher credit facility, the government is also planning to strike a state-to-state deal with Gulf countries to reduce the cost of crude oil imports. The import of oil and its products eats up roughly $15 billion a year.

In this connection, the Ministry of Finance is discussing the modalities of enhancing the oil credit facility with the representatives of oil marketing companies and refineries.

The country’s consumption of petroleum products stands at 22 million tons, of which about 13 million tons are imported. Apart from this, oil refineries import nine million tons of crude oil per annum to meet their processing needs.

Government officials believe that the import bill will swell further in the wake of closure of compressed natural gas (CNG) stations in Punjab and lack of gas supply for running power plants.

Demand for petrol from vehicle owners surges following shutdown of CNG outlets while absence of gas for power plants increases the need for furnace oil.

“In this scenario, we see pressure mounting on the already thin foreign exchange reserves of the country,” an official remarked.

Industry players say private companies in the oil sector have already made commercial arrangements with different oil suppliers. “And now, the government is planning to enter into relatively long-term oil import contracts with friendly Muslim countries,” an official said.

Published in The Express Tribune, February 11th, 2014.

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Reader Comments (9)

  • rasgullah
    Feb 11, 2014 - 1:46AM

    Pakistan has turned begging into an art form.

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  • Golden Horde
    Feb 11, 2014 - 8:02AM

    @rasgulla not as much as the indians. $415 billion dollar foreign debt for india means and still begging the world for more!!. Go beg for more and kiss everyone’s shoes before pointing fingers at pakistan.

    Recommend

  • Arif Hassan
    Feb 11, 2014 - 10:31AM

    @ RASGULLAH

    This is not begging. In Financial terms it means negotiating contracts based on monetary terms. This is what you can say business terms with your customer. Saudis will see their own cash flows to terms this arrangment in their own interests. More credit facility means more interest a type of more revenue for the saudis. This is the norms of international trade just like US ties with Saudis and other Gulf Council countries.

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  • Paki
    Feb 11, 2014 - 10:42AM

    @rasgullah:
    KSA sells oil to USA on three months credit facility. If Pakistan asks for credit facility how it can be termed as begging.
    I am surprised by the your business knowledge; where enhanced credit facility will be called begging.

    Recommend

  • pkr
    Feb 11, 2014 - 12:11PM

    Let the rupee depreciate and all of this will be fixed automatically.

    Recommend

  • pkr
    Feb 12, 2014 - 7:04AM

    @Paki:
    Let’s not kid ourselves. Pakistanis creditworthiness is not comparable to the US’. We have serious foreign exchange crisis brewing. The Saudis would be doing us a huge favour if they approved an “enhanced credit limit”.

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  • Nida Alvi
    Feb 12, 2014 - 10:19AM

    This is an example of prudent financial management whereby you defer your current liabilities to enable fiscal space in your budget. This fiscal space will definitely help in building reserves (that were squandered by PPP regime to defend PKR value).
    With reduction in current liabilities & reserves buildup, the value of PKR will not need artificial support measures any more!

    Recommend

  • Amaad Lone
    Feb 25, 2014 - 12:11AM

    Pakistan needs to reduce dependence on oil, and the IPPs should be the first to change from furnace oil to coal. In the next ten years the government needs to draw up a plan to completely phase out furnace oil power generation and switch to coal in the short term, and hydro in the long term. The government should also encourage and give tax credits to products that are energy efficient. The sooner we reduce our reliance on Arab oil, the better.

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  • fool
    Mar 4, 2014 - 10:21AM

    @Golden Horde:
    At least not as much as americans at 16 trillion USD

    Recommend

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