Government seeks to get refineries higher credit lines

ISLAMABAD: The government will again call on the central bank to use its clout to convince commercial banks to step up credit lines for refineries so that they can import more crude oil to enhance production of key fuels, The News learnt on Thursday.

According to sources, the government has also decided to halt the export of naphtha so that it could be used locally by refineries to increase production of motor gasoline.

These decisions were taken in a meeting that met under the chair of petroleum secretary and was attended by representatives of refineries, OGRA (Oil & Gas Regulatory Authority) chairman, and other senior officials.

In the meeting, ways and means were discussed to increase the production of finished petroleum products by refineries, especially diesel and petrol, as in the international market the price of the finished products have surged manifold, a senior official who was part of the meeting told The News.

The refineries said if their credit limits were enhanced substantially, they would import extra crude oil to produce maximum refined products.

Cnergyico PK Limited and Pakistan Refinery Limited (PRL) are running at 50-56 percent of their capacity and have the potential to increase production if their credit lines are enhanced for import of crude oil and naphtha.

According to sources, refineries’ working capital situation is substantially squeezed given the current limited credit line, massive increase in the prices of petroleum products in the international market, and rupee depreciation against dollar.

The official informed that petroleum division secretary had promised oil refiners to again take up this issue with the State Bank of Pakistan and play his role in halting the export of naphtha so that it could be used locally to maximise motor gasoline output.

The additional secretary petroleum division in his letter, dated Feb 28, 2022, to the Governor State Bank of Pakistan had mentioned that commercial banks were showing indifference to the demands of industry that was in dire need of an increase in the credit limit.

The commercial banks were reluctant to increase the credit limit for OMCs and refineries because of a probe by FIA against Hascol after its default of Rs54 billion.

But the FIA had allowed all commercial banks to do business with scrupulous OMCs seeking an increase in their credit limits mainly because of the massive depreciation of rupee against dollar and high international fuels market.

The investigation agency had written to the presidents of all commercial banks on March 18, 2022 that the agency was told that banks were showing hesitation in doing business with OMCs, apparently due to investigation against Hascol, a private OMC.

The FIA however made it clear that its ongoing investigation against Hascol should not be a source of concern for those OMCs that are not guilty of misconduct or breach of trust.