Banks Discouraging Traders from Opening LCs on Solar Panel Imports

Banks are discouraging traders from opening letters of credit (LCs) against imports of solar panels and refusing to arrange the required import collection documents for shipments that have already arrived or are scheduled for arrival at the ports for customs clearance.

Industry sources told ProPakistani that there are up to 40 containers stuck at Karachi Port having a face value of $35-40 million, and companies are being slapped with heavy demurrages for containers stuck at ports awaiting clearance of the required financial instruments (FIs).

When inquired about the matter by ProPakistani, SBP’s spokesperson denied that the State Bank of Pakistan (SBP) is imposing any ban on the imports of solar panels and their related equipment. The spokesperson said SBP hasn’t issued any circular in this regard, nor has it asked any bank to block the facilitation of importers for these products.

Local players like Meta Energy and AZY Commodities wrote letters to the Pakistan Solar Association (PSA) on 13 June 2023, where they appealed to the association to take up the matter with SBP, highlighting the issue of delayed financial instruments by local banks.

“Our consignments have either docked at the port or are on the way to Karachi port and will be arriving soon,” they wrote.

“It is not at all financially viable for us to have our containers lied at the port where banks are not approving the Financial Instruments for arranging customs clearance. Such deterring actions by the financial institutions not only instigate inflation of the product’s end user price but also result in payment of heavy demurrages which are again in FCY,” they argued.

They appealed that documents received at bank counters are strictly under registered contracts and issuance of FIs must be accorded without any delays. They said shipments of Solar PV Modules that had arrived at the Karachi port or were en route to Pakistan were awaiting customs clearance because of the nonavailability of approved FIs from banks.

On 20 June, Pakistan Solar Association penned a detailed letter to SBP Governor Jameel Ahmed, highlighting the plight of the local solar industry and the problems that are presently confronted by players on contracts (LC, DA/DP) against which the shipments were processed.

The shipments, according to PSA, were processed with approval from commercial banks against payment terms in liaison with the suppliers/importers. The banks that are not facilitating the FI nor providing the documents to the importers will cause a huge financial loss in terms of demurrage and detentions, which would not only be making a financial impact on the importers but will also drain valuable foreign exchange reserves to the shipping lines, the letter stated.

“If there is any need to change the payment terms (from 365 days as previously required by the commercial banks) to any term lesser than 365 days i.e., to 60/90/180 days, DP/LC at sight, it would also be acceptable to PSA members. The stated revised terms will be beneficial for the importers as the payment liability will be extinguished from the importer accounts and will reduce the risk of price variations caused by foreign exchange rates,” it explained.

The PSA requested the central bank governor to guide commercial banks to facilitate the imports needed to support renewable energy in Pakistan.

The Association also urged assistance in facilitating the already in-process import contracts to avoid huge financial losses in terms of demurrages and detentions. It asked for the removal of the solar energy sector from the list of non-essential items and consider renewable energy technology as an essential utility in present times and conditions as recognized globally.