May 19, 2021 (MLN): In the utmost strenuous situation, Saudi Arabia agreed, in principle, to help Pakistan by resuming the Saudi Oil Facility (SOF) on deferred payments costing up to $3 billion per annum for an extended period.
This plea was made by Pakistan during the recent visit of Prime Minister Imran Khan to Saudi Arabia where the exact modalities of the deal will be known after a formal agreement.
As specified by The News, the agreement seems to be on track as the Federal Minister for Information and Broadcasting Fawad Chaudry stated, “Yes, it’s almost done”.
This covenant could bring substantial relief for the budget makers of Pakistan for the next fiscal year 2021-22 as Islamabad is vying all alternative plans to overcome major external account problems. On the other hand, this progress came as a breather when Pakistan is negotiating with International Monetary Fund (IMF) to avoid burdening its masses by increasing tariffs and taxes that would have cascading effects.
Prior to this, the Kingdom of Saudi Arabia (KSA) had provided a $6 billion financial package, including $3 billion deposits into the State Bank of Pakistan, and the remaining $3 billion for oil facility on deferred payment per annum basis, the News said.
The last oil facility agreement from KSA was made operational from July 2019, stating a three-year duration when Saudi Crown Prince Mohammad Bin Salman made his visit to Pakistan. the agreement was formed with the understanding that the first-year bill would be paid on monthly basis and then second-year oil would be obtained on deferred payment. The idea was that the whole facility would end in the fourth year upon the maturity of getting oil for the third year. It was assessed at that time that Pakistan would require a $275 million oil facility on monthly basis from the KSA, so it accounted for $3.2 billion on a per annum basis for a three-year period, it added.
An agreement was made where both sides agreed upon using the IDB’s Islamic Trade Finance Facility (ITFC) to work on the plan. Yet, it is unknown how much Pakistan had availed from the SOF during the first year, later this facility got suspended. The IDB had also agreed to provide a $1.5bn oil facility on deferred payment, so in totality, there was a provision of $4.7bn oil on deferred payment.
A huge satire was that out of such a massive facility, Pakistan hardly made use of 30%, tuned up to $1.5bn only in the fiscal year 2019-20. It utilized more than $700 million from the SOF and around $800 million from ITFC. The ITFC facility could not be fully utilized owing to inefficiencies on both sides. The IDB had agreed to provide financing from Gulf banks. However, this facility could not be exhausted fully due to a mismatch in requirements.
Talking to The News, one of the top officials dealing with the issue stated, “The exchange rate variation, reduced oil prices and certain specific chemical used in crude oil made it hard for Islamabad to utilize the whole oil facility from both sides,”. He added, “Government had made efforts to finalize arrangements with private refineries but failed to do so because of various hitches. Now the government will have to create incentives for private refineries to utilize the SOF related crude oil so that it could be utilized fully”.
Getting this opportunity again, Pakistan would have to convince the refineries to make 100% use of this facility, or it would remain a worthless exercise to get this support from the brotherly country, the official said.
Copyright Mettis Link News
41189
