ISLAMABAD, July 14: Saudi Arabia has reduced the supply of its free-of-cost oil to Pakistan by half, saying that Islamabad is now in a position to pay for its oil requirements as its foreign exchange reserves stood at $10.4 billion.

Informed sources told Dawn here on Monday that the annual Saudi oil facility amounting to $600 million had been reduced to $300 million from year 2003.

Pakistan has been receiving oil free-of-cost, under the tag of “deferred payments,” since the country went nuclear in 1998.

“It is a setback but it was unrealistic to expect a country, no matter how rich and how friendly, to continue to afford such generosity,” a senior official of the Ministry of Petroleum and Natural Resources told Dawn while confirming that Saudi Arabia had reduced its free-of-cost oil facility to half.

The official said that Saudi Arabia had earlier informed Islamabad that Riyadh was no more in a position to continue providing oil free-of-cost to Islamabad.

Some government officials said that it was believed that President Gen Pervez Musharraf would discuss the issue with the Saudi leadership during his recent visit to Saudi Arabia but the president was believed to have not discussed the matter with the Saudi authorities.

“They (the Saudi government) are still obliging us but who knows how long this reduced facility will continue,” said another official concerned. He, however, expressed the hope that the United Arab Emirates (UAE) would continue to provide a certain quantity of oil on reduced prices, but he did not give details of this facility.

Until year 2000, this oil facility was successfully camouflaged in the budget books which helped government to immensely benefit both in terms of finances, and also present a better picture of the economy. However, the IMF later forced the government to mention the Saudi oil facility in clear terms in the budget.

Pakistan spends $3 billion annually on the import of crude oil from Kuwait, Saudi Arabia, Iran and UAE. The country is currently producing 66,000 barrels of oil per day against the consumption of 300,000 barrels of oil per day.

During the last 12 years (1990-91 to 2001-02), the average consumption of the petroleum products has increased. On an average, the energy consumption has increased by 4.6 per cent per annum.