ISLAMABAD: An emergent meeting of the Economic Coordination Committee (ECC) of the Cabinet on Tuesday approved a special grant of Rs27 billion (about $100 million) for payments to Kuwait Petroleum Corporation to avoid a formal default of the national fuel supplier — Pakistan State Oil (PSO).

The meeting presided over by Finance Minister Ishaq Dar also sanctioned Rs2.9bn in additional supplementary grant and supply of 25,000 tonnes of wheat to Gilgit-Baltistan.

The ECC had last week allowed a Rs50bn sovereign guarantee for commercial borrowing by Sui Northern Pipelines Ltd for partial payment of over Rs498bn payables to PSO.

However, PSO issued a formal “SOS call” that a technical default had already occurred but required an emergent foreign exchange to avoid its repercussions.

The KPC had been a long-term fuel supplier to PSO for decades through a credit facility which used to be extended on annual basis. The previous facility expired on Dec 31, 2022. Given the precarious position of the foreign exchange reserves, international suppliers were getting jittery while supplies needed to be ramped up.

PSO Managing Director Syed Muhammad Taha, who was given a three-year extension till Feb 21, 2026 on Tuesday, is reported to have told the government that its foreign exchange cover had been exhausted and even local financing costs were eating up the company’s profitability despite rising market share as private suppliers contained their exposure owing to financial difficulties.

The Petroleum Division told the ECC that PSO had sought a Rs17bn supplementary grant against exchange losses on account of a credit facility from Kuwait and the ECC formed a committee of professionals for an arrangement for three types of credit facilities -– KPC credit facility, foreign exchange cover under FE-25 loan facility and Islamic Trade Finance Corporation (ITFC) from Saudi Arabia – being availed by PSO for import purposes.

Since 2000, PSO is utilising a KPC credit facility for the supply of diesel oil under the term contract. It deposits the rupee equivalent with the National Bank of Pakistan (NBP) after 30 days from the bill of lading date of each shipment and NBP transfers the cargo cost to KPC, Kuwait.

Like all such committees, this panel also realised only last week that finalising a report on the mechanism for exchange loss on these facilities would take some time due to the complexity of the issues and feedback required from some other important stakeholders.

“However, since an international default situation is developing on KPC credit facility payments, an immediate supplementary grant” of Rs27bn should be provided.

It was reported that despite the expiry of KPC’s credit facility in December, four transactions were still due on March 20 and financing was not available in the relevant account with NBP which had seen huge exchange losses owing to “prevalent upheaval” in the exchange rate over the past 12 months.

PSO had told the government last week that its receivables had crossed Rs775bn amid Rs498bn payables by SNGPL alone and PSO’s borrowing had gone beyond Rs411bn to fill the financial gap with a financing cost of Rs43bn during the current year and Rs75bn next fiscal year.

Wheat for GB

The ECC also approved a summary of the Ministry of Kashmir Affairs and Gilgit-Baltistan for the immediate release of 25,000 tonnes of wheat to Gilgit-Baltistan for March and April to avoid shortages during Ramazan.

Keeping in view current wheat prices, the ECC also approved an additional amount of Rs2.9bn through Technical Supplementary Grant to meet the urgent requirement of Gilgit- Baltistan.

Published in Dawn, March 22nd, 2023