SBP allows banks to increase OMC credit limit to facilitate oil imports
- SBP relaxes the rules, allowing banks to increase the credit limit of certain OMCs in liquidity difficulty.
- Aims to ensure smooth importation and availability of petroleum products.
- Refineries requested an increase in the credit limit required to open LCs.
ISLAMABAD: To ensure smooth importation and availability of petroleum products in the country, the State Bank of Pakistan (SBP) has relaxed its rules, allowing banks to raise the credit limit of some petroleum marketing companies (WTO ) in difficulty with liquidity, The news reported.
The central bank has written a letter to the Oil and Gas Regulatory Authority (OGRA), saying local lenders have remained accommodating to oil sector credit needs and are willing to support WTO requirements, subject to positive credit due diligence.
The letter dated April 1, 2022 reads: “Given the strategic importance of the availability of petroleum products to meet domestic needs, the central bank has actively engaged with relevant stakeholders for the resolution of the question and for this purpose various meetings were organized with the participation of representatives of banks, WTO and oil refineries.
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According to the letter, SBP monitors import transactions and OMC credit risks to ensure that banks respond quickly to the sector’s credit needs.
The central bank has also requested OGRA, in the event of any shortfall in the planned oil import target of any WTO, to share the same with it so that joint efforts can be made to resolve the issues. about.
Local refineries have long complained to the government that their working capital situation has been significantly squeezed given the limited line of credit, a massive increase in the price of petroleum products on the international market and the sharp depreciation of the rupee against the dollar. .
Refineries have requested an increase in their credit limits required to open LCs (letters of credit) for the timely importation of crude oil for the production of finished products such as mogas (motor gasoline or gasoline), diesel and fuel oil.
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The Additional Secretary of Petroleum Division in a letter dated February 28, 2022 to SBP Governor Dr. Reza Baqir had mentioned that commercial banks were showing indifference to the demands of the industry which was in desperate need of an increase in the credit limit.
Commercial banks were previously reluctant to raise credit limits for OMCs and refineries due to an FIA investigation into Hascol after it defaulted on Rs 54 billion.
But the FIA had allowed all commercial banks to do business with scrupulous OMCs seeking an increase in their credit limits mainly due to the massive depreciation of the rupee against the dollar and the high international fuel market.
However, in a recent meeting, held on March 31, 2022 to call on refineries to increase their throughput, it was decided that the petroleum division and OGRA would approach the central bank to help resolve credit limit issues preventing the oil sector to open LCs for crude oil imports.
The Petroleum Division would raise the issue with the DG (PC) and the respective oil exploration and production companies (Oil and Gas Development Company, Pakistan Oilfields, Pakistan Petroleum Company) for increased local crude supply to Attock Refinery Limited.
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In addition, it was also agreed that Cnergyico PK will sue banks to increase credit limits for opening LC for crude oil imports.
During the meeting, the government assured the stakeholders of its best possible support. The meeting also reached consensus that, given the current harvest season and product availability issues in the international market, all refineries would ensure maximum capacity utilization.
Another decision, taken at the meeting, was that all refineries would strive to increase heating oil production given the current LNG supply challenges and increased demand from the electricity sector. .
The Petroleum Division has been given the responsibility to process the approval required for the notification of locally produced HSD/PMG specification, which can facilitate refineries to scale up production.