Oil industry issues SOS over financial crisis and supply chain disruption

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KARACHI: Pakistan’s oil industry has issued an SOS over the acute financial crisis after foreign banks suspended credit lines for Pakistani refineries amid growing concerns over global industrial failures, officials said on Tuesday.

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

“The situation has not improved at all despite the assistance of the State Bank of Pakistan (SBP),” the Petroleum Companies Advisory Council (OCAC) said in a letter titled “SOS Appeal: Industry oil company in the midst of an acute financial crisis and resulting energy supply chain collapse.”

OCAC has sent a letter to the Minister of Finance and Minister of State for Energy, asking for their support in rescuing the industry after the non-confirmation of Letters of Credit (LC) for oil imports by banks due to “high country risk”.

OCAC, in its SOS appeal to government officials, called for the urgent virtual oil industry meeting.

The oil body said it has already briefed on the critical financial situation of the industry with regard to the refusal of international banks to confirm letters of credit from Pakistani banks for oil imports.

A senior local oil company executive told The News that SBP had made efforts to resolve the issue, but had no leverage with the global banking system to arrange the oil import facility. “SBP has instead asked local banks to activate their links with international banks to facilitate the company’s oil imports,” the official said.

He pointed out that the problem was largely unresolved so far, but a slight improvement was seen when a vessel carrying oil from a local oil marketing company, anchored at Karachi port for 10 days, was unloaded on Monday.

“An international bank was not confirming the LC of oil import from this particular WTO and therefore it had been waiting to be discharged for 10 days,” he added.

“Since it was a small oil shipment, she got the confirmation, but larger oil import orders were not confirmed.”

He said that “the few who are confirmed receive the facility on half of the amount required for the confirmation of LCs”.

On the other hand, credit lines from local banks for oil imports have also not been extended after global oil prices hit historic highs.

“The line of credit that was enough to cover the import of crude oil when it was $70 a barrel is not enough to import crude oil, which was now trading at $120 a barrel,” added the manager.

OCAC also raised the issue of a 0.75% turnover tax in the letter, arguing that imposing it at current oil price levels is unsustainable for the industry.

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