Saturday July 02, 2022

Banks shy of expending trade credit for oil imports

April 17, 2022

KARACHI: Despite a recent assurance by the central bank, most commercial banks reluctant to expend trade credit for oil sector entities, facing the worst cash squeeze amid high global petroleum prices, industry officials said on Saturday.

"Banks have not increased the borrowing limits of oil marketing companies (OMCs) and refineries so far in the face of Governor State Bank of Pakistan Dr Reza Baqir’s confirmation on it," a top executive of an oil company said while talking to The News.

Oil & Gas Regulatory Authority (OGRA) in a statement issued a few days back quoted central bank governor as saying the oil companies credit lines had been revisited.

“Banks have not done anything in this regard as yet and don’t seem to be interested in doing so,” the chief executive officer of a refinery said.

“Commercial banks are not required to follow SBP governor as per law and they take their decisions keeping their commercial interests in view.”

Banks enhance the credit lines purely based on the track record of the client and in the case of the oil sector, they will not do it before carrying out due diligence, the refinery official said.

He added that commercial banks were reluctant to increase the credit lines in view of the OMCs’ financial situation that went from bad to worse after they were ordered to sell petroleum products at lower rates after buying them at higher prices.

“Though the government has sanctioned funds to clear PDCs (price differential claims), the flow is not smooth,” another top executive of an OMC said.

Stakeholders say even though SBP eases rules for credit lines enhancement, banks are not inclined to

consider it because of some companies’ bad credit history.

Oil Companies Advisory Council (OCAC), the representative body of OMCs and refineries, repeatedly requested the government to intervene for getting their credit lines revised upwards as more money is required for opening L/Cs given bullish world oil markets.

The financial problems in the oil sector cropped up after the previous government announced to freeze the prices of diesel and petrol till next budget, promising to pay PDCs to the oil sellers.

The new PML-N-led coalition government has decided to keep the oil prices frozen in its first review.

The PDCs for the current fortnight have been calculated at Rs21/litre and Rs52/litre on petrol and diesel respectively, which will cost the incumbent government Rs36 billion for the aforementioned period.