Crude import by refineries: government to reconsider giving foreign exchange cover

The government has decided to re-consider the proposal of allowing foreign exchange cover to oil refineries on import of crude oil. The subcommittee of Economic Co-ordination Committee (ECC) of the Cabinet on ex-refinery oil pricing formula had turned down the proposal to allow forward cover on foreign exchange to oil refineries on import of crude oil after opposition from Finance Ministry and the State Bank of Pakistan (SBP).
Minister for Petroleum and Natural Resources Naveed Qamar in a meeting held with chief executives of oil refineries held in PSO House, Karachi on September 11 assured the oil refineries that the proposal of forward cover on foreign exchange would be reconsidered.
The chief executives of oil refineries apprised the Minister that due to unpredictability of international crude oil prices, refineries faced huge losses during 2008-09. They claimed that some refineries were near to shutting down due to losses, and requested for government intervention to provide incentives in an effort to make them financially viable.
Oil refinery executives further stated that due to poor financial health, they were facing the problem in opening letters of credit (L/Cs) for crude oil import. The Minister asked the chief executives to resubmit the proposal of foreign exchange cover, and assured them that it would be taken up in the competent forum for consideration.
Finance Ministry had committed to the International Monetary Fund (IMF) in its Letter of Intent dated 20 November 2008 to "phase out the SBP's provision of foreign exchange for oil imports according to the following schedule: furnace oil by February 1 2009, diesel and other refined products by August 1, 2009, and crude oil by February 2010." Aftab Ahmed, General Manager, Supply and Planning, Pakistan Refinery Limited (PRL), expressed reservations about this commitment.
Oil refineries raised concerns over the issue of 'circular debt', saying that it was the root cause of their financial problems. They urged the Minister to immediately resolve the issue of 'circular debt' as it was one of the main hurdles in opening L/Cs for crude oil import. The Minister assured them that the government was fully aware of the problems faced by refineries on the issue of circular debt, and promised speedy action in this regard.