Staff Report
Amid rising oil prices in international market coupled with devaluation of Pak rupees against dollars, Oil Companies Advisory Council (OCAC) has requested the State Bank of Pakistan (SBP) to consider enhancing the trade finance facilities for the entire sector.
In a letter dated 31st January 2022 to the Governor of SBP, OCAC has requested for enhanced financing facilities for the local oil marketing sector and the refineries.
“The OMCs and refineries are the back bone of the energy sector and the economy while any disruption in their business will result in catastrophic impact on the entire energy supply chain of the country,” said the OCAC.
OCAC has also requested SBP Governor to resolve regulatory issues with respect to Prudential Regulations of SBP for corporate customers which imposes certain restrictions on banks for extending additional financing to companies.
Citing reasons for enhanced trade finance facilities for refineries and OMCs, OCAC said that sales of POL products in the country have increased by 24percent as compared to last year. Motor Gasoline (Petrol), high speed diesel (HSD) and furnace oil (FO) consumption is up by 14pc, 27% and 38% respectively. However, due to limited refinancing capacity in the country, the additional demand of POL products is continuously being catered via imports as OMCs during FY 2021 had imported 10 million metric tons of POL products valuing USD 4.80 billion.
“Working capital requirements of OMCs and refineries is increasing on the back of PKR depreciation, increase in international oil prices and increase in local demand,” said OCAC.
It added that due to opening of COVID-19 related lockdowns, there is a significant surge in global oil prices whereby year to date crude oil, MS, HSD and FO prices are up by 7pc, 66pc, 57pc and 64pc. This has resulted in manifold increase in OMCs non funded facility requirements.
It is anticipated that due to opening of lockdowns in various countries and supply chain disruptions coupled tense geopolitical situation in the Middle East & Ukraine the international POL prices projected to increase in upcoming months, said OCAC.
It is important to note that as of September 2021, a 50% increase in average oil prices has been recorded since June 2021 (USD 81.56 /barrel vs USD 54.38/barrel). Moreover, PKR has also depreciated by 7pc since January 2021.
Sources in oil refining industry emphasized that banks should revisit the limit facilities especially for the private refineries the same way they do for the other industries, since this sector is a high volume low margin sector and gets affected directly with the rupee dollar parity and rising oil prices and some flexibility keeping these key factors in place should be laid out by banks to facilitate this particular sector as well. They said that the banks have not increased the limit for this industry despite the fact that oil prices have been going up with each passing day and Pak currency has been depreciating against the dollar’s value. They said it is imperative for the local banks to revisit these limits keeping the micro and macroeconomic indicators of the world economy in view. Refineries and OMCs are the backbone of the economy and save billions of rupees for the national exchequer, but what has made difficult for them to breathe into their operations is the fact that the bank limits for financing facilities have remained unchanged for the last many years, said sources.
They added that with the linkage of limits to the capacity and output would further incentivize this ailing refining sector.
