With fuel crisis on cards, OCAC seeks to bring LC issuance on track

KARACHI/ISLAMABAD: The supply chain of petroleum products would take six to eight weeks to normalise in the country, if it was compromised on the basis of refusal of banks to settle letters of credit (LCs) for the import of crude and petroleum products, the oil industry feared on Friday.

Oil Companies Advisory Council (OCAC) – the representative body of refineries and oil marketing companies (OMCs) on Friday in a communication to Ministry of Finance sought its intervention in the matter after its members started facing issues in the settlement of LCs. This occurred despite the fact that oil imports have been put in the essential items list for opening and settlement of credit letters.

OCAC referring to challenges being faced by the OMCs and refineries in opening of LCs for import of petroleum products noted that Pakistan has an energy deficit, and in order to fulfill energy demand, approximately 430,000 tonnes Mogas, 200,000 tonnes high-speed diesel and 650,000 tonnes crude oil was imported on a monthly basis at a cost of around $1.3 billion.

These imports require opening of LCs. However, currently the industry was facing severe challenges in opening and confirmation of credit letters, which has caused delay in multiple cargoes and a few cancellations as well, it said.

Despite these challenges the industry, under the supervision of the Oil and Gas Regulatory Authority (OGRA) and the Ministry of Energy — Petroleum Division (MEPD) has been able to ensure fuel supplies across Pakistan, it added.

But, OCAC pointed out that the situation has severely deteriorated during the current month as banks were declining LC establishment to industry members. “If LCs are not established on a timely basis, critical imports of petroleum products would be impacted which may lead to fuel shortage in the country,” it stated.

Oil body noted that if supply chain was compromised, it would take six to eight weeks to normalise. Therefore, the OCAC sought immediate intervention of the ministry for streamlining the process and ensuring timely establishment of LCs for import of petroleum products in order to avoid any disruption.

OCAC’s communication followed the letter written by state-run OMC Pakistan State Oil (PSO) a day earlier about the settlement of LCs.

In addition to PSO, other refineries, including Hascol Petroleum Limited, Pakistan Refinery Limited and Attock Petroleum Limited have also complained about the issues in credit letter settlements for the import of petroleum products as well as crude oil to meet the domestic demand of the products.

Hascol has written a letter to the State Bank of Pakistan governor, highlighting the challenges in the opening of LCs for imports of POL products. The letter informs the SBP that the situation has gotten worse in the first week of January 2023, whereby banks were denying any new contract or LC, which will lead to a critical shortage of oil at the retail stations in the coming weeks.

It asked SBP to intervene in the matter, and to instruct Habib Bank Limited, Habib Metropolitan Bank, and Askari Bank to open requisite LCs to ensure business continuity.