ECC to decide on Rs20bn plan for hedging of oil imports

Updated 04 Jun 2020

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The Ministry of Petroleum is seeking hedging of about 20 per cent of Pakistan’s total oil imports and pass on the cost of this higher rate to consumers. ⁠— Reuters/File
The Ministry of Petroleum is seeking hedging of about 20 per cent of Pakistan’s total oil imports and pass on the cost of this higher rate to consumers. ⁠— Reuters/File

ISLAMABAD: The government has called a meeting of the Economic Coordination Committee (ECC) of the Cabinet on Wednesday to consider hedging of oil prices and about Rs120 billion worth of funds to finance improvement of western border management and low bill recoveries in the power sector.

To be presided over by Finance Adviser Dr Abdul Hafeez Shaikh, the ECC may also approve payment of over Rs4.4bn to Broadsheet LLC after the National Accountability Bureau (NAB) lost an arbitration case in London courts.

Informed sources said the Broadsheet was hired in 2001-02 by NAB under Musharraf government to probe leading Pakistani citizens but then terminated the contract. Pakistan lost arbitration and then appeals. The ECC will today take up payment of part final award (Quantum) of Rs4.4bn.

Approval also possible for force enhancement on western border

The ECC will also approve Rs8.8bn Capacity Enhancement of Western Border Management Phase-II for creation of a few additional battalions of Balochistan and Frontier Corps (South).

The meeting is also expected to approve depositing about Rs17bn in apex court account on account of pensioners and staff of Pakistan Steel Mills in a case filed by Mr Zardad Abbasi and 75 others besides taking up about Rs18.8bn retrenchment plan for about 9,000 remaining employees of PSM.

The ECC is also expected to approve a summary for supply of gas to residents in the five kilometres radius of some new gas field and reimbursement of operational cost of single point mooring installed by Byco Petroleum.

It will also take up a summary of the Power Division for about Rs100bn fiscal support out of Covid-19 Stimulus Package in three months to power companies to compensate for low recoveries which have dropped from over 90pc to about 65pc due to installments and related problems.

The Ministry of Petroleum is seeking hedging of about 20 per cent of Pakistan’s total oil imports and pass on the cost of this higher rate to consumers. The products proposed for hedging crude oil, motor gasoline, high speed diesel as well as LNG.

The proposal has been finalised in consultation with the Standard Chartered Bank, Citibank, Habib Bank and JP Morgan. Some of the stakeholders had previously opposed the proposal saying the government should not go for betting.

The petroleum ministry has sought approval for a call option for 15 million barrels of oil for one year, divided in 12 equal monthly amounts, for a strike price of $8 above current Brent as long as fee is within acceptable range.

It has sought to have another call option for 15m barrels of oil for two years, divided in 12 equal monthly amounts, for a strike price of $15 above current Brent as long as fee is within acceptable range.

The ECC has also been asked to give policy direction to the Oil and Gas Regulatory Authority to include monthly price of the option in the cost of LNG or any other oil product chosen in announcing the monthly prices.

The call option is a financial instrument exercise under which when the price goes above the call level, the amount received can be allocated to any particular product to keep its pricing fixed at the ceiling for the hedged period.

Published in Dawn, June 3rd, 2020