On January 31, the largest Pakistani refinery wrote a letter to the Ministry of Energy (Petroleum Division) informing them that from February 2, 2023, to February 10, 2023, the refinery would remain shut due to a shortage of crude oil. Cnergyico PK Head of Consumer Sales Syed Adeel Azam said in the letter that the shutdown was in line with the ‘crude oil vessel arrival timeline’. The refinery has a processing capacity of 1,56,000 barrels per day.
A week before, Oil Companies Advisory Council (OCAC) had written a letter to the Oil and Gas Regulatory Authority (OGRA) informing the body about the crisis the industry was facing. OCAC said in the letter that the industry was on the brink of collapse and immediate steps were needed to be taken to “arrange financing to ensure imports”.
Pointing out the depreciation of the Pakistani rupee and its effect on imports, OCAC said, “Due to the increase in oil prices and successive depreciation of Pakistani rupee over the last 18 months, the trade finance limits available from the banking sector have become inadequate. As a result of the recent devaluation alone, the LC (letter of credit/ import) limits have shrunk overnight by 15-20%.”
It added, “It is requested that the banking sector be immediately requested through the State Bank of Pakistan to enhance the limit of our member companies (including Cnergyico).”
Not only had the economic condition of the country but the floods in 2022 hindered the transport of crude oil to the refinery as the roads and bridges were washed away. Though alternate routes were adopted the losses continued to rise.
As per the Geo News report, cash-strapped Pakistan’s government removed the dollar cap to the conditions laid down by the International Monetary Fund. It resulted in the historic fall of Pakistani currency in the interbank market. Currently, it is trading at 277.81 Pakistani rupees per US Dollar. Removing the dollar cap was one of the conditions to resume the bailout. Other conditions included easing fuel subsidies and more.
As per reports, the letters of credit (LCs) were also restricted by the government amidst the falling foreign exchange reserves. As of January 27, Pakistan’s USD reserve was as low as 3,086.2 million which could only be enough for 18 days’ worth of imports.
Energy imports comprise a major share of the country’s import bills. Over one-third of the annual power, demand is met by imported natural gas. Since the Russia-Ukraine war started, its price has skyrocketed in the international market creating a dominos effect in the cash-strapped neighbouring country.
Notably, Pakistan is using frequent blackouts leaving millions of people in dark to save fuel. Furthermore, in a recent order, the government of Pakistan ordered businesses, restaurants, malls and marriage palaces to shut down early to save electricity. Amidst the crisis, the country’s luxury car imports continued to make a dent in the foreign reserves.
