The Bank of China has opened a Letter of Credit (LC) for Pakistan’s oil imports from Russia. Government officials revealed last month that talks to buy Russian crude at a discounted rate were in the final stages and two weeks later, the country finally ordered its first cargo, reported Express Tribune.
A ship carrying 100,000 tons of crude oil will be arriving in the last week of May.
Pakistan will be buying Russian crude on a cost, insurance, and freight basis meaning the country will be paying for the cargo after it will be delivered to the port. Previously, refineries paid for the cargo to be transported on a free-on-board basis. While there are hopes that the discounted crude may relieve some of the burden from the historically high inflation, the prospects seem less encouraging.
Pakistan is expecting a $16-$18 discount per barrel, the payments will be made in Chinese Yuan which Pakistan will have to buy in US dollars which we don’t have. Moreover, Russian crude will yield refined products in different compositions that can upset the existing petroleum infrastructure.
Arab Light Crude which Pakistan import normally yields 45% high-speed diesel (HSD) and 25% furnace oil. On the other hand, Russian crude is mostly 50% furnace oil and only 32% HSD which can be a problem because according to a 2020-21 report on Regulated Petroleum Industry by the Oil and Gas Development Authority, furnace oil makes only 15% of Pakistan national petroleum consumption while Diesel accounts for nearly 39%.
Refineries are already struggling to cope with excess furnace oil stocks piled up as the power plants have moved to Liquefied Natural Gas (LNG) for power generation. Government has yet to make a final decision which will be made after Pakistan Refinery Limited (PRL) will test the Russian crude for the quality and composition of refined products.
Pakistan will pay US dollars from already depleting dollar reserves and will dollar yuan conversion be based on international markets or GtoG agreements?
Testing could have been done on a lesser amount of crude oil, rather than importing 100,000 ton, which is not free. Buy some brain first. Ruthless idiots on every post.