Banks’ refusal to raise credit limit could hurt fuel supply

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ISLAMABAD: Fearing a disruption in the fuel supply chain in the country, the government has asked the State Bank of Pakistan (SBP) to step in and ask commercial banks (CBs) to immediately raise limits credit from petroleum marketing companies and refineries to meet the growing demand for petroleum products in the country.

Since the prices of POL in the international market have increased significantly, the working capital of OMC and refineries has tightened given the current credit limits, and if the financial limits are not increased, there are risk of disorder in the fuel supply. chain. The demand for diesel has also increased due to the wheat harvest season in Sindh and Punjab.

The Deputy Secretary of the Petroleum Division wrote to the Governor of the State Bank of Pakistan on February 28 and mentioned the indifference of commercial banks to the request of WTOs and refineries to increase their credit limits. “Commercial banks are also reluctant to open the Letter of Credit (LC) for the import of POL products,” the letter said. “Pakistan is highly dependent on imported fuels and OMC has to import diesel, gasoline and jet fuel to meet local demand.

In this context, local banks must facilitate the OMC of mounting imports. With rising oil prices, OMC working capital requirements have increased due to regulatory delays in adjusting consumer prices with import prices, lines of credit from marketing companies oil are strained.

Industry sources also confirmed that refineries and OMCs began to feel the heat of a growing liquidity crunch after commercial banks refused to raise the trade finance limit. OMCs are also required to maintain 20 days of inventory as a licensing requirement by OGRA, which incurs additional inventory holding costs.

Previously, OCAC (Oil Companies’ Advisory Council) also reported this issue to the Governor of the State Bank of Pakistan in a letter dated January 31, 2021, notifying him of an impending supply chain disruption of the oil. POL due to the unhelpful attitude of the banks. He asked the head of the central bank to resolve regulatory issues regarding SBP’s prudential regulations for corporate clients which impose certain restrictions on banks for providing additional finance to corporates. “And if OMCs and refineries do not receive timely funding, any disruption to their operations will have a catastrophic impact on Pakistan’s entire energy supply chain.”

OCAC said working capital requirements for OMC and refineries are on the rise following the depreciation of the PKR, rising international oil prices and increased local demand. In September 2021, a 50% increase in average oil prices was recorded since January 2021 (81.56 USD/barrel against 54.38 USD/barrel). Additionally, PKR has also depreciated by 7% since January 2021. In the first half of the current fiscal year 2021-22, POL product sales increased by 24% compared to last year. In FY21, OMC imported 10.0 million metric tons of POL products worth $4.80 billion, he said.

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