ISLAMABAD: The Petroleum Division of the Ministry of Energy on Friday sought urgent intervention of the Ministry of Finance (MoF) and the State Bank of Pakistan (SBP) to arrange the opening of letters of credit (LCs) for fuel imports after the entire industry, including oil marketing companies and refineries, raised red flags over looming supply disruption.
Similarly, the telecommunication industry, in a letter to the IT ministry, expressed apprehensions over banks’ refusal to open LCs for the telecom companies and said that the restrictions were causing delays in the execution of new projects.
Potential fuel chain disruption
Informed sources said that not only the Oil Companies Advisory Council — an association of more than three dozen refineries and market companies — but also the leading refineries and marketing companies, including Pakistan State Oil (PSO), had complained about the shortage of exchange reserves and refusal of private banks to open LCs for oil imports.
A meeting between the representatives of the oil industry and Tariq Bajwa, adviser to the prime minister on finance, had also remained fruitless on Thursday.
An official said the supply chain was on verge of collapse and therefore the petroleum division and Oil and Gas Regulatory Authority (Ogra) were also now writing letters to MoF and SBP to protect their positions in view of any supply disruption that could take more than six weeks to revive.
Otherwise, it is an official policy of the finance ministry and the central bank to ration foreign exchange supplies as official reserves have plunged below $4.3bn.
The petroleum division reported to the MoF and SBP that Ogra and PSO had reported “insufficiency of credit lines and reluctance by the banks to open letters of credit for oil imports due to various apprehensions”.
In order to fulfill the country’s needs, the OMCs have to import petroleum products like diesel, petrol and jet fuel, and it was necessary for the local banks to play their part in facilitating requisite foreign exchange and imports. It demanded that SBP and MOF should “intervene in the matter and advise the relevant banks to open requisite LCs for import of fuel, including lubricants”.
The state-run PSO complained that due to dwindling reserves and the issue of dollar availability with commercial banks, the SBP had “issued instructions to banks to restrict the establishment of LCs for essential items only.
PSO believed the list of essential items also included POL products but beginning this week (on January 9), the national fuel supplier was unable to open certain LCs for the import of petrol and lubricants due to limited dollar availability.
Hascol and Attock Petroleum
Hascol and Attock Petroleum Limited — both among the top five OMCs — separately reported that they were also facing LCs issues for oil imports.
Hascol said that despite its credit lines, its supply chain was being hampered by delays in the opening of confirmed letters of credit, leading to supply disruptions in the country, particularly at Hascol’s retail network.
The non-availability of LCs is “resulting in negative signals to the international oil suppliers lead to forced cancellation of oil cargoes”.
It demanded that its banks like Habib Bank, Habib Metropolitan and Askari be instructed to open requisite import contracts/confirmed letters of credit to ensure smooth supplies.
Telecom sector demands LCs
Meanwhile, the telecom sector had similar concerns as telcos, including Jazz, Zong4G, Telenor, and Ufone, as well as the backend technology equipment suppliers, are dependent on imported items for maintenance and expansion of their networks.
Incidentally, the state bank had issued a circular on December 27, 2022, withdrawing restrictions earlier imposed on letters of credit from January 2 to facilitate imports, said a senior official of one of the telecom companies.
“But none of the major banks that we deal with are opening the LCs,” the official claimed.
Published in Dawn, January 14th, 2023
