OCAC Demands SBP to Improve Oil Trade Financing Facilities

The Oil Companies Advisory Council (OCAC) has demanded that the State Bank of Pakistan (SBP) improve the trade financing facilities of the country’s oil sector.

The consortium of oil marking companies has written to the SBP for its Governor, Reza Baqir, to address all the issues concerning financing facilities through commercial banks. It also warned that “any disruption in OMCs (oil marketing companies) and refineries’ business will result in catastrophic impact on the entire energy supply chain of Pakistan”.

The OCAC’s letter detailed that the sales of POL products in Pakistan had climbed by 24 percent in the first half of FY22 as compared to the previous year. It read: “This growth is primarily attributable to the surge in economic and trade activities, improvement in large-scale manufacturing, higher HSD demand from [the] agriculture sector, robust auto sales, rising local tourism and reliance on some FO-based power plants due to higher electricity generation in the country”.

The OCAC explained that the increased demand for POL products is continually satisfied through imports because of the country’s low refining capacity, with OMCs having imported 10 million metric tonnes of POL products worth $4.80 billion in FY21. It said that average oil prices had grown by 50 percent to $81.56 a barrel in September 2021, up from $54.38 a barrel in January 2021. Furthermore, the local currency has devalued by seven percent since January 2021.

The OCAC also wrote that as all the economies around the world emerged from the COVID-19 lockdowns and international commodity prices began to rise sharply, there was a significant increase in the global prices of oil, with year-to-date crude oil, MS, HSD, and FO prices up 70 percent, 66 percent, 57 percent, and 64 percent, respectively.

“This has resulted in [a] manifold increase in OMCs’ non-funded facility requirements,” the OCAC said and added that the international prices of petroleum products are expected to rise in the coming months as a result of the opening of lockdowns in various countries and supply chain disruptions, as well as the tense geopolitical situation in the Middle East and Ukraine.

In view of the abovementioned details, the OCAC assessed that the working capital requirements of OMCs and refineries are expanding.

It remarked in the letter that the Oil & Gas Regulatory Authority (OGRA) requires OMCs to retain 20 days’ worth of inventory, which adds more burden in terms of holding costs. In this regard, the OCAC implored the SBP to simplify the regulatory difficulties pertaining to its prudential safeguards for corporate clients as some laws prevent banks from providing additional loans to businesses.

The central bank was also requested to issue instructions to banks to support the OMCs’ continuous supply of oil products.