ISLAMABAD: Pakistan and the International Isla­mic Trade Finance Corpo­ration (ITFC) — a subsidiary of the Islamic Develop­ment Bank — on Monday signed a $4.5 billion new framework agreement to finance oil, LNG and fertiliser imports over the next three years (2021-23).

The new framework agreement will “provide financing for the import of essential commodities such as crude oil, refined petroleum products, LNG and urea”, announced the Ministry of Economic Affairs (MEA) soon after the signing of the agreement.

The agreement was formally signed by ITFC Chief Executive Officer (CEO) Engineer Hani Salem Sonbol and Economic Affairs Division (EAD) Secretary Noor Ahmed in the presence of Minister for MEA Omar Ayub Khan.

The financing available through this facility will be utilised by Pakistan State Oil (PSO), Pak-Arab Refinery Ltd (Parco) and Pakistan LNG Ltd (PLL) for import of crude oil, refined petroleum products and LNG during the years 2021-2023.

Within the context of its trade integrated solutions approach, the framework agreement also covers ITFC’s support for trade-related technical assistance projects, which will be selected jointly by both parties according to the national economic priorities and development plan of Pakistan, the EAD explained.

The agreement will also facilitate identification of other areas of cooperation at country and regional levels and to enhance and promote trade, trade capacities of relevant state authorities and financial institutions and trade cooperation in the country.

The ITFC had also committed in April 2018 a similar financing line for the country for 2018-20 period, but their utilisation finally could not cross $3bn, as private refineries were unable to import crude under the facility and the facility mostly remained limited to Parco and to some extent to PSO.

At the signing ceremony, Eng Sonbol said the framework agreement reflected the importance of the longstanding cooperation between ITFC and Pakistan government. “ITFC is continuously working closely with its member countries to meet their requirements by providing integrated solutions that include financing and capacity building tools that allow for maximizing the development impact of ITFC interventions.

Minister Khan thanked the ITFC for arranging the financing ‘at a very challenging time’ to help Pakistan meet its import requirement of oil and LNG and ease pressure on cash reserves of the country. “We are delighted and we will continue to mobilize financial resources to support Pakistan in its endeavours to achieve its economic targets through the new Framework Agreement,” he said, adding the partnership between Pakistan and ITFC would strengthen.

The ITFC’s financing would be utilized over three years (2021-2023) by Parco, PSO and PLL for import of crude oil, refined petroleum products and LNG and help augment the country’s foreign currency reserves and provide resources to meet the oil import bill.

Pakistan’s oil import bill has amounted to about $10bn in first 11 months of the current fiscal year but has been rising in recent months due to increasing trend in the international oil prices. In first 11 months, Pakistan has imported about $2.5bn each worth of LNG and crude oil besides $4.5bn worth of refined petroleum products.

ITFC is a member of the Islamic Development Bank Group and provides trade financing to member countries after putting together funds from financial institutions in the Middle East. The sources said Pakistan had last year signed a $1.1bn trade financing facility for the current year but could not be fully utilised due to lower oil international oil prices, depressed demand in Pakistan and limitations of the refineries in availing Arabian Crude.

The sources said the cost for the upcoming financing facility would be lower than the existing one given substantial surplus liquidity of the banks in the United Arab Emirates and Saudi Arabia because of constrained business activities in the wake of ongoing Covid-19 wave. The existing facility envisaged 2.3pc plus London Inter-Bank Offered Rate.

Published in Dawn, June 29th, 2021