ISLAMABAD: The Saudi oil facility promised to Pakistan in October last year for supply of crude oil and its products on credit is set to begin from July 1, which will help partially offset increasing pressure on the exchange rate.

“The Saudi facility will get activated in July and provide about $3 billion worth of oil supplies on deferred payments,” finance ministry’s spokesman Dr Khaqan Najeeb told Dawn on Wednesday.

Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh later took to Twitter to thank Crown Prince of Saudi Arabia Mohammad Bin Salman for his continuous support for the people of Pakistan. “From 1st July 2019 KSA is activating the deferred payment for petroleum products facility of US$275m per month,” the minister said, adding that the facility amounting to $3.2bn per annum would be available for three years. “This will strengthen Pakistan’s balance of payments position,” Dr Hafeez said.

Saudi Arabia had agreed to a Pakistani request in October last year to provide a $6bn bailout — $3bn in safe deposit of the State Bank of Pakistan and $3bn in oil supplies on credit. The $3bn cash had been transferred to the SBP account in three equal monthly instalments, but the oil facility could not be formally activated.

Oil supply on deferred payments will help partially offset increasing pressure on exchange rate

Informed sources said that as the Pakistani rupee came under renewed pressure following the announcement of a staff level agreement with the International Monetary Fund for a $6bn bailout package, Pakistan authorities made fresh contacts with the Saudis authorities who agreed to formally activate the oil facility in July.

The United Arab Emirates had also promised a similar support for Pakistan — $3bn in cash deposit and $3bn oil supplies on deferred payments. The UAE had transferred $3bn in cash deposit, but the oil facility could not be materialised.

The sources said the UAE had declined to provide oil on deferred payments. When asked, Dr Khaqan said the UAE oil facility was “still under process”.

Pakistan’s oil imports are estimated at about $15bn and the government is trying to arrange half of those requirements through credit facilities. The country’s oil imports during the first 10 months of the current fiscal year stood at about $11.9bn, an increase of 4pc over the same period last year.

Besides the support from Saudi Arabia and the UAE, Pakistan had also arranged about $551 million worth of oil and LNG (liquefied natural gas) supplies through the Islamic Trade Finance Corporation (ITFC). Of this, about $240m worth of letters of credit have recently been opened for import of LNG.

This is the single largest financing from the ITFC — a subsidiary of the Islamic Development Bank — increasing the total facility to about $1.05bn during the current fiscal year. This is part of a $4.5bn package Pakistan and the ITFC had signed in April last year to cover oil and LNG imports over a period of three years at a rate of about $1.5bn per annum.

This year, however, the facility could not go beyond $1.05bn owing to limitations of partner banks of the ITFC. It previously extended about $500m funds in three installments of $271m, $125m and $100m during the current fiscal year.

The facility finances crude imports for Pak Arab Refinery Limited (Parco), petroleum products by Pakistan State Oil and LNG by Pakistan LNG Limited. The IDB through the ITFC has been facilitating oil import coverage and first time included LNG financing.

The Economic Affairs Division said last month the ITFC facility was “a part of framework agreement signed in April 2018 for a total envelop of $4.5bn over for a period of three years (2018-20)”. The credit facility is subject to about 2.3pc plus London Interbank Offered Rate.

The facility had formally become effective on July 1, 2018 when it rolled over about $100m loan. Before the 2018-20 framework agreement, the ITFC had extended about $3.2bn trade financing facility of similar tenure to Pakistan mostly covering crude oil and some petroleum products.

Published in Dawn, May 23rd, 2019