ISLAMABAD: Fearing a disruption in the fuel supply chain in the country, the government has asked the State Bank of Pakistan (SBP) to intervene and ask the commercial banks (CBs) to immediately increase the credit limits for oil marketing companies and refineries to cater to the increasing demand of petroleum products in the country.
Since the POL prices in the international market have increased manifold due to which the working capital of OMCs and refineries has squeezed keeping in view the current credit limits, and if the financial limits are not increased, then there are chances of disorder in the fuel supply chain. The demand for diesel has also increased on account of the harvesting season of wheat in Sindh and Punjab.
Additional Secretary of Petroleum Division wrote to the governor State Bank of Pakistan on February 28 and mentioned the commercial banks' indifference to the demand of OMCs and refineries for increasing their credit limits. “Commercial banks are also reluctant in opening the letter of credits (LCs) for importing POL products," says the letter. “Pakistan is heavily reliant on imported fuels and the OMCs have to import diesel, petrol and Jet Fuel to meet the local demand.
Against this backdrop, the local banks must facilitate the OMCs for arranging imports. Given the rising oil prices, the working capital requirement of the OMCs have increased on account of the regulatory lags in adjusting the consumer prices with the import prices, the credit lines of oil marketing companies are stretched.
The industrial sources have also confirmed that refineries and OMCs have started feeling the heat of increasing liquidity crisis after the commercial banks refused to increase the limit of trade finance. The OMCs are also bound to hold 20 days of inventory as a license requirement by OGRA which results in additional inventory holding costs.
Earlier, the OCAC (Oil Companies’ Advisory Council) had also flagged this issue to the Governor State Bank of Pakistan in a letter on January 31, 2021, informing him of impending disruption in the POL supply chain due to the non-helpful attitude of the banks. It asked the central bank chief to resolve regulatory issues concerning Prudential Regulations of SBP for corporate customers which impose certain restrictions on banks for extending additional financing to companies. “And if OMCs and refineries are not provided timely financing, then any disruption in their business will result in a catastrophic impact on the entire energy supply chain of Pakistan.”
The OCAC said the working capital requirements of OMCs and refineries are on the rise at the back of PKR depreciation, increase in international oil prices and increase in local demand. As of Sept 2021, a 50% increase in average oil prices was recorded since January 2O21 (USD 81.56/barrel vs USD 54.38/barrel). Moreover, PKR has also depreciated by 7% since January 2021. During the first half of current financial year 2021-22, sales of POL products have increased by 24% as compared to last year. During FY21, OMCs imported 10.0 million metric tons of POL products valued at USD4.80 billion, it said.