Pakistan drops plan for SPV to import Russian oil

KARACHI: Pakistan has scrapped plans to set up a special purpose vehicle (SPV) for importing Russian crude oil due to high pricing risk, sources told The News on Tuesday.

Earlier, the government had planned to put this arrangement in place, however, this idea has been shelved. The refineries have now been asked to import Russian crude on a commercial basis, sources familiar with the development revealed.

Pakistan imported two cargoes of Russian crude oil in the last five months. The first cargo was imported under a government-to-government arrangement, and the second cargo was imported on a commercial basis. Pakistan plans to import more Russian crude oil in the future.

The government has decided to shift the import of Russian crude oil to commercial lines because of the high pricing risk and the long arrival time. Russian crude oil is also more expensive to transport because of the long distance between Russia and Pakistan, compared to the shorter distance between Pakistan and the Arabian Gulf region.

Under the earlier plan of an SPV, the gains to be made from discounted Russian crude oil would have had to be deposited with the body to pass on the benefits to consumers. However, sources said that as the reduction in consumer prices from Russian crude oil imports was not so substantial, there was no point in pursuing this plan.

They said that now the gains would be deposited with the refineries that import Russian crude oil in the future, and the government would benefit from the 46 percent tax that the refineries deposit in the national exchequer.

Refineries have been asked to import Russian crude oil on a commercial basis, but they must not violate any international treaties or regulations on imports from Russia.

Pakistan plans to import more Russian crude oil. Caretaker Energy Minister Mohammad Ali had said that the country was considering signing a long-term agreement to purchase between 0.7 million and 1 million tons (up to 20,000 bpd) of Russian oil per year.

A high-level delegation, headed by the Energy Minister, attended "Energy Week" in Russia and discussed a long-term program for the import of discounted crude oil from Russia on the sidelines of the event. Pakistan has been grappling with high fuel prices due to the massive appreciation of the dollar in the last one and a half years, as well as the surge in global crude oil prices. Although the rupee has recovered to some extent in recent weeks and crude oil prices have come down, domestic fuel prices are still much higher than they were a year and a half ago.