Oil Marketing Companies Facing Shortages as Govt Fails to Resolve LC Issues

Pakistan State Oil (PSO) is yet to berth two of its cargoes carrying petroleum products at Karachi Port, while other refineries and oil marketing companies (OMCs) are facing severe crude oil and petroleum product shortages as the government has failed to resolve the letters of credit (LCs) issue.

All the refineries and oil marketing companies, except Pak Arab Refinery, are facing problems in importing fuel as the supplier wants the confirmation of LCs by the partner banks and is not ready to accept Pakistan’s LCs, an official source revealed.

The only way out for refineries and OMCs is the International Monetary Fund (IMF) deal. The LC issue will be resolved as soon as the deal is secured. The government has a very limited role to play in the matter, the source added.

Foreign banks are currently not confirming local refineries’ or OMCs’ LCs for the imports of crude oil and petroleum products. Pakistani banks were opening LCs on behalf of the refineries/OMCs, but their partner banks were not extending credit cover, which is impacting the import of crude oil and petroleum products.

The oil refineries and OMCs met twice with the Petroleum Division on the issue of LCs this week. However, the resolution lies with the outcome of the deal with the International Monetary Fund (IMF) and the transfer of enough green back to Pakistan from China and elsewhere, the source said.

Earlier this week, two cargos carrying PSO petroleum products were denied permission to offload them due to the non-confirmation of LCs by the international banks. This incident was followed by another event when on 21 June, in which PSO received only one bid for the supply of 54,000 metric tons of gasoline during the last week of July due to the LC issue.

PSO had floated tenders for the supply of 50,000 MT of Petrol 92 research octane number (RON) and 4,000 MT Petrol 95 RON for 29 and 31 July 2022 but only one company, Idemitsu, responded to the tender.

The source said that besides PSO, all other refineries (except PARCO) and other OMCs are also suffering due to the LC problem. Byco’s refinery is also not fully operational due to the shortage of crude oil, and its shipment of oil is being delayed due to the LC issue. Similarly, PRL is unable to pick up its delivery from Dubai, the source added.

PSO is establishing its LCs as required and has an adequate stock of Mogas to meet its supply chain requirements, according to the source, and it has already awarded all the required cargoes for July as per the demand.

Regarding the episode of two PSO cargoes’ refusal to dock from international waters earlier this week, the source said PSO is managing the berthing of its cargoes as per its supply plan, and there is no disruption.

PSO is running from pillar to post to resolve the situation of maintaining supplies but the county’s dollar issue and global energy prices are the key hurdles beyond their control.