Concerns of a depletion in oil stocks are growing

 The Petroleum Division has highlighted the issues being encountered in obtaining Letters of Credit for imports to the State Bank of Pakistan.

The Petroleum Division has warned the State Bank of Pakistan (SBP) that the stocks of petroleum products may dry up as banks are refusing to open and confirm Letters of Credit (LCs) for imports, due to the US dollar shortage and restrictions imposed by the SBP.

Consequently, an oil cargo of Pakistan State Oil (PSO) has already been cancelled, and the LC for another cargo, scheduled for loading on January 23, has not yet been confirmed. The Petroleum Division has thus urged the SBP Governor to take necessary measures to resolve this issue, as the difficulties being faced by oil refineries and marketing companies in establishing LCs have become a major concern.

Despite plans to import two crude oil cargoes of 535,000 barrels each, banks are reportedly unwilling to open and confirm the required Letters of Credit (LCs), thus delaying the shipment and the subsequent loading of the cargoes.

Pakistan Refinery Limited (PRL) is scheduled to load a cargo of 532,000 barrels on January 30, however, its LC is still being negotiated with a state-owned bank. Additionally, two petrol cargoes of Pakistan State Oil (PSO) also await the opening and confirmation of LCs by local banks.

Furthermore, 18 cargoes of petrol booked by other oil marketing companies (OMCs) such as GO, Be Energy, Attock Petroleum, Hascol Petroleum, and others are similarly awaiting the opening and confirmation of LCs. Overall, the absence of LCs is causing a significant delay in the shipment of the cargoes.

Since the second week of January, a series of meetings have been held in order to tackle the situation regarding banks’ refusal to open LCs in favour of OMCs and refineries for the import of crude oil and petroleum products.

On January 13, the first such meeting was convened that highlighted this issue, and on January 17, another session was organised chaired by the petroleum secretary and attended by representatives of OMCs, refineries, Oil Companies Advisory Council, SBP, Finance Division and Oil and Gas Regulatory Authority. Subsequently, on January 18, a meeting was held in which details of relevant pending and outstanding LCs were shared.

At the meeting, it was agreed that the State Bank of Pakistan (SBP) would look into the issue of outstanding letters of credit (LCs) and give its response the very next day. The sitting, chaired by Petroleum Division additional secretary, was attended by the Director General (oil), Ogra chairman, PSO managing director and SBP representatives, who pointed out that Pakistan was facing a severe liquidity crunch, including at SBP and commercial banks, which was why LCs were being delayed.

The Petroleum Division underscored the need for taking energy conservation measures to minimise consumer demand, while PSO MD revealed that its Mogas (motor gasoline – petrol) cargo, scheduled for loading on January 13, had already been cancelled due to the delay in opening LCs, and banks were also reluctant to open LCs for another cargo slated for loading on January 23. Therefore, it was decided that SBP would look into the issue and provide a response the very next day.

The DG Oil warned that limited oil stocks in the country could result in a depletion of inventory. It was decided that the State Bank of Pakistan (SBP) should formally submit a response to the list of required Letters of Credit (LCs) so that the issue could be addressed at the highest level by the SBP Governor and the Finance Minister.

He requested that the SBP provide its reply and that the Governor take appropriate decisions. In the event that the SBP is unable to offer its support, the DG Oil suggested bringing the matter to the attention of the Finance Minister and the Prime Minister’s Office.