Dollar shortage jeopardising maintenance, upgrade of refineries

KARACHI: Local refineries are facing immense hardships in upgrading and annual maintenance due to a shortage of dollars in the country, The News learnt on Friday.

Pakistan has been grappling with the scarcity of dollars, which impacts the various sectors of the economy, including refineries that need to go ahead with annual maintenance as well as upgrading their refineries.

“Banks are not willing to give the required dollars on the grounds that they do not have enough of the greenback to give to the refineries to import the equipment and parts for upgrade,” sources in the refining sector informed.

Local refinery sector has approached the Ministries of Finance and Energy as well as the State Bank of Pakistan to intervene in this situation and get the problem resolved for the smooth functioning of refineries.

According to the sources, one of the refinery, which entered into an expansion project with a foreign firm sometime back has asked the federal government and central bank for the resolution of their problem.

“The refinery needs the US dollar for the import of equipment and parts for this project, but the scarcity of the foreign currency in the country is creating hurdles in the way of this expansion and up-gradation project,” sources said.

Sources said that on one hand, the government has almost finalised the refining policy, the major component of which was up-gradation and expansion of local refineries, but on the other hand, refineries were not being provided with enough dollars to go ahead with expansion and upgrading.

According to the official paper related to the new refining policy, the refineries’ five years profit and loss position indicates that the sector needs fiscal support of the government to improve the financial position for up-gradation. In case of no intervention by the government, the local refining industry risked collapse/shutdown.

In such a case the domestic crude oil production of approximately 70,000 barrel per day by exploration and production companies would be exported in competition of Gulf states, whereas the import of multiple petroleum ships would further complicate the growing congestion at ports.

Such a scenario might discourage investment in the exploration of oil and gas sector, apart from creating vulnerability in the supply chain of strategic fuels, while placing an additional burden on our balance of payments if more value-added products have to be imported.

Government has been emphasising upon the five local refineries to upgrade, and that requires huge capital investment of around $4 to $4.5 billion that refineries have to arrange from their equity or via funding from lenders on commercial terms.