ISLAMABAD, Jan 10: The government it is learnt has arranged a loan of Rs20 billion through a consortium of banks for payment of oil companies’ liabilities which have piled up to over Rs40 billion owing to a freeze on oil prices.

Informed sources told Dawn on Thursday that a meeting of the Economic Coordination Committee (ECC) of the cabinet presided over by Prime Minister Mohammedmian Soomro approved the Rs20 billion syndicated loan with 10 per cent interest. The loan will translate into about Rs28 billion at the time of repayment in five years.

Of the total, Rs15 billion will be paid to Pakistan State Oil (PSO) and Rs5 billion to Shell-Pakistan. The two companies hold about 80 per cent share in Pakistan’s oil industry. The state-run PSO has more than 60 per cent market share.

The sources said the Rs20 billion would be in addition to Rs12 billion paid to PSO and Rs6 billion to Shell last month on the same account.

In total, the government has taken Rs38 billion loan which will translate into Rs52 billion at the time of payment. It means that the next government will have to pay an extra Rs14 billion in interest out of public money on loans totalling Rs38 billion.

The sources said that petroleum ministry’s suggestion for an increase in oil prices from January 16 had divided the cabinet and no decision could be taken. The ministry had proposed five per cent, 10 per cent and 15 per cent increase in prices of diesel and motor spirit.

The sources said that another meeting had been convened on Monday to discuss the ministry’s proposals.

A majority of the cabinet members were of the opinion that an increase in oil prices could be suicidal in the wake mounting pressures arising out of flour, gas and electricity shortages across the country.

The sources said that after the payment of Rs38 billion to PSO and Shell and another Rs4 billion to other smaller marketing companies and refineries, another Rs12 billion would remain to be paid to smaller companies.

They said the recent payments had improved the cash position of larger companies which had been able to build their stocks since December 19. However, smaller companies continue to be tied up and some of them are finding it difficult to maintain smooth sales of diesel.

The government has maintained oil prices for almost a year, although international prices have gone up significantly. As a result, the government’s bank borrowing has crossed Rs220 billion in the first half of the year against a full year target of Rs131 billion, escalating fiscal deficit beyond control.

The country’s fiscal year target is set at 4.5 per cent, but the pace at which the deficit has widened it may go beyond 6.2 per cent.