Finance Division is likely to transfer Rs 11.7 billion in NBP account to remit to Kuwait to avoid international default, well-informed sources in Petroleum Division told Business Recorder.
The Government of Pakistan has been utilizing a credit facility extended by Kuwait Petroleum Corporation (KPC) against the supply of diesel oil (HSD) under the term contract with PSO since 2000. All the procedural formalities of this arrangement were advised by the Finance Division, whereby a joint account of DG Oil/KPC liaison office was opened with NBP, Karachi. PSO deposits rupees equivalent with NBP after 30 days from the bill of lading date of each HSD shipment. After 90 days from the bill of lading date, NBP transfers the cargo cost to KPC, Kuwait. Exchange cover of an additional 60 days, if any, has to be borne by the GoP.
The account was operating satisfactory as long as the exchange rate of Pak Rupee vs US dollar was stable. However, since unprecedented devaluation of rupee from 2008 onwards, the BP account witnessed a significant shortfall on account of exchange losses. This led to the realization for provision of exchange cover for smooth operation of the account while ensuring timely remittances to Kuwait and to avoid any payment default. Consequently, Petroleum Division has consistently been approaching Finance Division for provision of necessary funds for exchange cover since July 2008.
The sources said, shortfall has resulted for the Ministry of Finance utilizing the credit for extra 60 days. The total shortfall on account of exchange losses has reached Rs 10.1 billion as of February 1, 2020 . However, to date, Finance Division has not provided any funds to offset the forex loss.
Currently, Covid-19 pandemic has seriously affected the oil supply/ logistic chain in the country. In view of a substantial reduction in demand due to enforcement of lockdowns throughout the country and higher levels of products inventory with local refineries, finished products' imports have been either cancelled or deferred for the month of March-April 2020. Two of the refineries have shut down their operations due to non-availability of throughput capacity, while the others are the verge of closing down.
Petroleum Division has apprehended that due to no/ limited imports by PSO from KPC during March-April 2020 and consequent discontinuation of 30 days deposit collections in the account, the available balances in the NIDA-5 account would be exhausted by the first week of May 2020. This is going to lead to consecutive defaults in KPC remittances due to the April, 4, 15 and 19, 2020 and June 4, 2020. Accordingly, a total shortfall of around Rs 11.654 billion is in the offing.
Petroleum Division has proposed the ECC that in order to avoid international default on the part of GoP guarantee, Finance Division may be directed to transfer Rs 11.7 billion in the NBP account for ensuring remittances to Kuwait as per schedule.
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