Oil industry issues SOS on financial crisis, supply chain breakdown

KARACHI: Pakistan’s oil industry has issued SOS over acute financial crisis after the foreign banks have suspended the credit lines for Pakistani refineries amid rising concerns about overall industrial defaults, officials said on Tuesday.

The industry also fears a breakdown in energy supply chain in the county.

“The situation has not improved at all despite help from State Bank of Pakistan (SBP),” Oil Companies Advisory Council (OCAC) said in a letter titled “SOS call: Oil industry amidst acute financial crisis and the ensuing breakdown of energy supply chain”.

The OCAC sent letter to the minister of finance and minister of state for energy, seeking their support to rescue the industry after non-confirmation of letter of credits (LCs) for oil imports by the global banks due to “high country risk”.

The OCAC in its SOS call to the government functionaries sought the urgent virtual meeting of the oil industry.

The oil body said they have already apprised about the critical financial condition of the industry with regard to refusal of international banks in confirming LCs of Pakistani banks for oil imports.

A top executive of a local oil company told The News that SBP has been making efforts to resolve the issue, but it has no influence over the global banking system to arrange the facility for oil imports. “SBP has been rather asking local banks to activate their links with the international banks to facilitate the oil imports of the company,” the official said.

He pointed out that the issue was largely unresolved so far, but a slight improvement was witnessed when a vessel carrying oil of a local oil marketing company, anchored at Karachi Port for the last 10 days was discharged on Monday.

“An international bank was not confirming the LC of the oil import of this particular OMC and so it was waiting to be discharged for the last 10 days,” he added

“Since that was a small oil cargo, it got the confirmation, but bigger orders of oil imports were not being confirmed.”

He said those “few being confirmed are given the facility on half of the amount, required for confirmation of LCs”.

On the other hand, the credit lines by the local banks for oil imports were also not being expanded after the global oil prices jumped to historic high.

“The credit line which was sufficient to cater the import of crude oil when it was $70 per barrel is not enough to import crude oil, which was now trading at $120 per barrel,” the official added.

The OCAC has also raised the issue of a turnover tax of 0.75 percent in the letter, arguing its imposition at the current level of petroleum prices is unsustainable for the industry.