Acute Petrol Shortage to Hit Pakistan Next Week

Refineries warned on Thursday that a petrol crisis could hit the country by mid-February if the government fails to resolve letters of credit (LCs) issues for imported raw materials and additives needed by the local refining sector.

The refining sector said in a series of letters that the delay in payments for raw materials and additives, exacerbated by the dollar shortage, had severely hampered petrol production, reported a national daily.

Local refineries warned Minister of State for Petroleum Musadik Malik and Governor State Bank of Pakistan (SBP) Jameel Ahmed via separate letters that “the situation will become extremely critical mid-February 2023 if remedial measures are not taken immediately”.

Challenges in establishing LCs to pay for raw materials and other inputs have been identified as contributing factors to the crisis. After vendors started hoarding in expectations of the price hike anticipated in the next fortnightly review, Punjab has already begun experiencing petrol shortages.

Pertinently, petroleum products were included on the SBP’s priority list of essential imports for critical industries’ foreign remittances. But imports of essential raw materials and additives, for which LCs had already been established, were being held by banks. Banks remain hesitant to establish LCs for NMA imports for which payment is due in February/March 2023.

Refineries warned that any delay or suspension of foreign payments for aforesaid imports would severely impede refinery operations, particularly the local production of petrol.

Refineries indicated that maximum production of indigenous petroleum products like petrol was essential today, as oil marketing companies (OMCs) were already having trouble importing the fuel due to the forex liquidity crunch faced by Pakistan.

They also noted that the refining sector has made significant contributions to Pakistan’s economic development in the form of revenues/government levies/taxes, as well as the processing of crude oil and significant savings in precious foreign exchange through import substitution.

The letter asked the authorities to not deny permission to the refinery sector for remitting a payment/establishing LCs in order to further its business operations.

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