March 08, 2023 (MLN): The steep depreciation of the Pakistani Rupee (PKR) has made the existing LC (letter of credit) lines inadequate for the industry, which may result in grave danger of disrupting the import of crude and refined products, Syed Nazir Abbas Zaidi, Secretary General of the Oil Companies Advisory Council (OCAC) mentioned in a written a letter to the Secretary of the Ministry of Energy and Petroleum Division.
While highlighting the severe impact of the recent depreciation of the Pakistani Rupee on the oil industry, the letter requested an urgent meeting with the industry to discuss the issue.
According to the letter, the industry has been following up with the Ministry of Energy and the Ministry of Finance to develop a mechanism for the complete recovery of exchange losses. The ideal solution, according to the letter, is to revise the prices immediately based on the current exchange rate. However, the industry understands that this might be challenging for the government.
The letter also requested the development and immediate implementation of a holistic mechanism for the recovery of the industry's exchange losses through the Import Financing and Exchange Mechanism (IFEM) to manage the situation and ensure the industry's survival.
Additionally, the cost of opening confirmed LCs has gone up many times, adversely impacting profitability as this cost is not absorbed in the pricing.
The letter further highlighted that, at the current PKR/USD parity and after the recent increase in SBP Policy rates, simply maintaining 20 days' stock cover as per OMC license requirements results in borrowing costs of more than 50% of regulated margins. In this extremely challenging environment, additional working capital burdens can raise significant concerns about OMCs being able to sustain operations.
Furthermore, the industry has been doubly hit due to the erosion of equity from FX losses as well as a reduction in working capital lines due to the increase in the PKR/USD parity coupled with an increase in international oil prices, particularly High-Speed Diesel (HSD).
The banking sector enhanced limits for industry members enabling them to manage the impact of increased oil prices and Rupee depreciation is critical for the survival of the sector and to maintaining the integrity of the POL supply chain, it added.
The industry is on the brink of collapse, according to the letter, and instances of fuel shortage in certain areas earlier this year highlight the fragile condition of the industry.
The association requested urgent action to ensure uninterrupted supplies.
The OCAC looks forward to the Ministry's support in this matter and meeting them early next week to discuss and resolve the issue.
Copyright Mettis Link News
Posted on: 2023-03-08T16:57:27+05:00
