The State Bank of Pakistan (SBP) has allowed commercial banks to raise the credit limit for oil marketing companies (OMCs) and refineries facing a shortage of funds for maintaining operations.
SBP wrote a letter to the Oil and Gas Regulatory Authority (OGRA) in this regard, stating that the local lenders have remained accommodative with the oil sector’s credit needs and are willing to support the OMCs’ requirements; subject to positive credit due diligence.
The letter read, “In view of the strategic importance of the availability of petroleum products for meeting the domestic needs, the central bank has been actively engaged with the relevant stakeholders for the resolution of the issue and to this effect various meetings were arranged wherein representatives of banks, OMCs, and oil refineries participated.”
The SBP also wrote that it is monitoring the OMC’s import transactions and credit exposures to ensure that the banks promptly accommodate the sector’s credit needs.
Local refineries have been complaining to the government for a long time that their working capital situation has substantially been squeezed on account of the limited credit line, a massive increase in the prices of petroleum products in the international market, and the walloping depreciation of the rupee against the dollar. They have also been asking for an increase in their credit limits that are required to open LCs (letters of credit) for timely imports of crude oil to produce finished fuels such as mogas (motor gasoline or petrol), diesel, and furnace oil.
Prior to this, commercial banks were reluctant to increase the credit limits for OMCs and refineries due to a probe by the Federal Investigation Agency (FIA) against Hascol Petroleum Limited after its default of Rs. 54 billion.
However, in a recent meeting that was convened to call on refineries to increase their throughput, it was decided that the Petroleum Division and the OGRA would approach the central bank to help it resolve the credit limit issues that were hindering the oil sector from opening LCs for crude imports.
