ISLAMABAD: The authorities have not been able to operationalise a $1.2 billion Saudi oil facility (SOF), owing to legal and procedural delays.

The Saudi government had agreed to provide a $4.2bn economic support to Pakistan in June 2021 and then formally signed an agreement in November. The economic package included $3bn foreign exchange deposit in Pakistan’s account and $1.2bn in oil supplies at the rate of $100 million per month at an interest rate of 3.8 per cent — higher than the previous rate of 3.2pc.

The interest rate on SOF is almost 1pc higher than that of 2.8pc by International Islamic Trade Finance Corporation, a subsidiary of the Islamic Development Bank, which is providing $4.5bn worth of three-year trade finance for oil, gas and fertiliser imports at the rate of $1.5bn per annum.

Informed sources said the finance ministry was required to provide sovereign guarantee on oil supplies which took time. Also, the designated entities of the two countries — Pakistan State Oil, Pak-Arab Refinery Limited (Parco) and National Refinery Limited (NRL) and Saudi Aramco — were required to sign a subordinate commercial purchase agreement which also consumed time in vetting by the law division, they added.

Kingdom’s envoy, Omar Ayub agree to expedite the mechanism at the earliest

Now the draft purchase agreement has been finalised by the two sides. PSO, Parco and NRL have also signed the agreement while Saudi Aramco has yet to sign it. The two sides, official sources said, expect the mechanism to be finalised by the end of the current month to start first oil flows with the start of next month.

In this connection, Ambassador of Saudi Arabia to Pakistan Nawaf bin Saeed Al-Malkiy had a meeting with Minister for Economic Affairs Omar Ayub Khan on Thursday. They “discussed ongoing development projects and new initiatives”, said an official statement. The minister appreciated the Saudi support in the priority development areas.

“During the meeting, it was agreed to operationalise the Saudi oil facility at the earliest,” the statement said, adding that the financing agreement worth $1.2bn for import for petroleum products was signed on November 29, 2021 between the Saudi Fund for Development (SFD) and the Economic Affairs Division of Pakistan.

After signing the purchase agreement, the financing agreement will be operationalised and importers — Parco and NRL — will materialise the first shipment of crude oil and petroleum products. The nominated entities from Pakistan (Parco and NRL) signed the final document on January 31 and it was sent to Saudi Aramco for signing. As per the financing agreement, the SFD will extend financing facility of up to $100m per month for one-year for purchase of petroleum products on a deferred payment basis.

During Prime Minister Imran Khan’s second visit to Saudi Arabia in October last year, the kingdom had formally committed to providing oil facility worth $100m per month for one year on deferred payments to Pakistan. Later, a financing agreement for import of Saudi goods (petroleum products/crude oil) was signed on November 29, 2021 with the SFD.

The terms of financing include the price of purchase by the SFD along with a margin of 3.80pc per annum. The financing agreement will be initially valid for one year, which may be extended for another one year with mutual consent. After the signing of the financing agreement and submission of sovereign financial guarantee from the Pakistan side, a new head of account has been opened.

This will be simultaneously followed by the signing of purchase contract by Saudi Aramco and Saudi Aramco Product Trading Company.

The SFD is providing financial assistance for various development projects.

The Saudi ambassador assured the minister of continued support at all level to further strengthen economic cooperation between the two countries.

Published in Dawn, February 4th, 2022