Pakistan Oil Industry’s SOS Ahead Of IMF Meet

'On the brink of collapse': SOS of Pakistan's oil industry ahead of IMF meeting

The IMF has set some conditions for the resumption of the bailout.


Cash-strapped Pakistani oil companies have warned that the industry is on “the brink of collapse” as the dollar liquidity crisis drags on and their business costs soar due to the rupee. devaluation.

As reported by Geo News, the government removed the dollar limit to meet International Monetary Fund (IMF) needs, which resulted in the Pakistani rupee falling to a historic low of Rs 276.58 per month. interbank market.

The IMF has set a number of conditions for the resumption of the bailout, including a market-determined exchange rate for the local currency and easing of fuel subsidies, both of which the government has implemented.

In a letter to the Oil and Gas Regulatory Authority (OGRA) and the Department of Energy, the Oil and Gas Companies Advisory Council (OCAC) said the “sudden devaluation” of the rupee has cost billions of rupees to the industry. industry as their letter of credit. (LC) is expected to settle at the new price, “while the product concerned has been sold,” it said.

The government has also restricted LCs as foreign exchange reserves fell to $3,086.2 million as of January 27, just enough to cover imports in just 18 days, the report said.

Pakistan is facing a balance of payments crisis and a sharp drop in the value of its currency is pushing up the prices of imported goods.

Energy accounts for a large portion of Pakistan’s import bill. The country typically meets more than a third of its annual energy needs, using imported natural gas, whose prices have skyrocketed following Russia’s invasion of Ukraine.

According to the OCAC, these losses will not only affect the profitability of the industry – which is already under severe pressure – but also the viability of the industry as these failures can in some cases exceed “the industry’s full-year profit”.

“Although FX loss compensation is allowed for LCs up to 60 days using PSO as a benchmark as approved by the ECC on April 1, 2020, our other Member Firms were unable to recover total loss due to the difference in import records with PSO,” Geo News quoted OCAC as saying.

“We demand urgently to amend this mechanism and ensure that the industry’s exchange rate losses are fully repaid if the viability of the industry and supply to retail stores are guaranteed.” , OCAC told authorities.

The letter mentions that OGRA has adopted the practice of not fully transferring the impact of the rupee devaluation and instead placing an enormous burden on the sector.

Given the challenges that the former exchange rate manipulation sector still faces and the enormous impact of the current devaluation, the OCAC said it is important that OGRA overcomes the impact of the exchange rate in a short period of time. times and does not tamper with this offset, the report said.

The council added that due to rising oil prices and the Pakistani rupee’s consecutive depreciation over the past 18 months, the trade financing limits available from the banking sector to the industry have become inadequate.

OCAC said that due to the recent devaluation alone, the overnight LC limit has dropped 15-20%.

“To ensure sufficient product imports into the country, it is important to increase industry trade finance/LC limits in line with current oil prices, exchange rates and volumes handled by each company. ty,” it said.

“The industry is on the brink of collapse if immediate steps are not taken,” the OCAC said.

Hours after the letter was sent, the Cnergyico refinery informed the petroleum division that it would be shutting down operations for more than a week.

“This is to inform your office that the Cnergyico refinery will be shut down from February 2, 2023 and will restart production from February 10, 2023, in line with the schedule. docking of our crude oil tankers,” the statement added.

(Except for the title, this story has not been edited by NDTV staff and is published from an aggregated feed.)

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