EDITORIAL: The Minister of State on Energy (Petroleum Division), Musadik Malik, held a press conference on his return from a three-day visit to Russia, claiming that a Russian delegation will visit Pakistan in January to negotiate further on commercial agreements for import of fuel – petrol, diesel and LNG – at ‘discounted’ rates.
It is relevant to note that Russian Urals crude was more than 30 dollars a barrel cheaper than Brent crude earlier this year and by September this year it was 20 dollars cheaper.
A few days before the delegation’s departure for Russia, Finance Minister Ishaq Dar in an interview to a private television had stated “we should pray the visit is successful and the government manages to secure a deal on favourable terms and conditions.”
Dar is also on record as having stated that the US expressed no reservations on any deal for fuel imports that Pakistan may forge with Russia during his attendance at the IMF/World Bank annual meeting in Washington DC and that the rates available would be comparable to India.
Two subsequent reports, not challenged by the government, laid these optimistic claims to rest. First that Russia could not offer any oil or its products to Pakistan as sales of its entire production were already committed, and secondly, the 30 to 40 percent discount requested by the Pakistan delegation for crude was rejected by Russia – an outcome that was to be expected given that while India is a long-term major buyer of Russian fuel, Pakistan would be a new entrant as well as a much small buyer in comparison.
This rejection must also be taken in the context of an unchallenged statement made by a high official of the Petroleum Division to Business Recorder that imports of crude and refined products from Russia at discounted rates are unlikely to save more than 1 billion dollars due to limited local oil refining capacity (Pakistan State Oil imports 70 percent of refined oil because the five local refineries have the capacity to process no more than 30 percent of domestic consumption) and their long-term contracts with the Middle East oil companies.
And, significantly, the 60 dollar per barrel cap of Russian seaborne crude by the European Union, G-7 and Australia (Ukraine’s Western allies) has been rejected by Russia hence it is unlikely to be on offer to Pakistan (the ban would not apply on vessels loaded before 5 December and unloaded at their destination before 19 January).
In March, China and India took advantage of discounted Russian oil and began to purchase more than Europe’s 27-nation bloc. China has signed new deals to transport Russian LNG by sea via the Arctic and in September Russia’s Gazprom and China National Petroleum Corporation agreed to use Russian rouble and Chinese yuan to make payments for Russian gas.
India began from a very low base at the start of 2022 in terms of imports from Russia, and was purchasing 0.7 million barrels per day last month. Sri Lanka too took advantage of cheaper Russian oil but Pakistan as is often the case delayed the decision-making.
Overwhelming evidence sadly suggests that the eleven-party coalition government’s economic agenda is being driven by the opposition led by former Prime Minister Imran Khan, albeit with a significant time lag – a delay that has frequently been the reason behind arbitration awards going against the country, including on hydro projects launched by India violative of the Indus Water Treaty brokered by the World Bank.
This was the case in reversing the unfunded 28 February relief package that was the reason behind the failure of the Khan administration to successfully negotiate the seventh IMF review – a package that was reversed in two phases seven weeks after the vote of no-confidence was passed notably on 28 May and 3 June.
And this is the case in exploring the possibility of procuring discounted fuel from Russia without first undertaking a cost-benefit analysis, i.e., looking at our limited refining capacity; and while a commercial agreement is possible in procuring LNG yet it must be borne in mind that unlike India and China our foreign exchange reserves are under severe stress with 7.498 billion dollars on 25 November including the recent rollovers (and another one billion dollars scheduled to be repaid in the first week of December) and hence what is urgently required is not only a deferred oil facility but also the success of the next IMF review that would release pledged assistance from both multilaterals and friendly countries.
Copyright Business Recorder, 2022
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