ISLAMABAD: The Petroleum Division is said to have expressed its concerns on the Finance Division’s ‘apathy’ with regard to provision of additional funds required to bridge the upheaval in the rupee-dollar parity, sources close to the secretary petroleum told Business Recorder.
The Petroleum Division, sources said, conveyed its distress after the Finance Ministry refused to support a proposal for allocation of additional funds of Rs17 billion to meet shortfall on account of exchanges with respect to payment to Kuwait Petroleum Corporation (KPC).
Sharing the background, sources said the Pakistan government is utilising a credit facility extended by KPC against supply of diesel oil 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.
The PSO deposits rupee equivalent with the NBP after 30 days from the bill of lading date of each shipment. After 90 days from the bill of lading date, NBP transfers the cargo cost to KPC, Kuwait. Exchange cover for an additional 60 days, if any, has to be borne by the GoP.
The credit facility is extended every year through a written request from the Minister for Petroleum Division to his counterpart in the Government of Kuwait.
In April 2020, the NBP account witnessed a huge shortfall on account of exchange losses, which was likely to result in default in remittances to KPC, Kuwait. Accordingly, the matter was presented before the ECC of the Cabinet, which approved a supplementary grant of Rs11.7 billion for transfer of funds in the NBP account. It ultimately helped in avoiding any international default.
The account has been operating satisfactorily for the last two years. Credit facility for the last year expired on December 31, 2021 and remittance of last cargo of 2021 was made on March 25, 2022.
The NBP account balance as of March 25, 2022 was around Rs153 million. Extension of the facility for the current year by Government of Kuwait was issued in April 2022.
However, the account has witnessed actual exchange losses of about Rs17 billion up to the last remittance made on December 2, 2022 owing to prevalent upheaval in the Rupee-Dollar parity during this period.
Meanwhile, the PSO has been defaulting on rupee deposits in the NBP account owing to its liquidity issues since June 2022, as its receivables have reached to Rs612 billion and it urgently requires adequate funds so that liabilities are met in a timely manner.
The Petroleum Division is trying to manage the remittances to Kuwait for avoiding any international default in consultation with the PSO by depositing required funds on the remittance dates but the situation is too critical keeping in view its liquidity problems.
The Petroleum Division had submitted budget requirements on account of exchange loss on this facility every year but the Finance Division makes no separate provisions in this regard, which leads at times to exposure on international default.
The Finance Division has been repeatedly requested for release of funds on account of exchange losses but there was no headway.
The Petroleum Division proposed that a supplementary grant of Rs17 billion on account of exchange losses on KPC credit facility may be approved for transfer in the NBP account to ensure future remittances to Kuwait as per schedule.
According to sources, the Ministry of Finance is the only stakeholder in this case, which has stated that in order to ease liquidity position of the PSO, government has already released an amount of Rs30 billion under FE-25 loans during September 2022. In addition to this, cash injection of Rs50 billion has also been provided to PSO through market financing under GoP guarantee.
Moreover, recoveries of PSO from CPPA-G, SSGC, SNGPL, and others are also under process/ consideration.
Keeping in view the existing circumstances, the Finance Division has not supported the proposal.
However, Petroleum Division is of the view that Finance Division’s steps for easing out PSO’s liquidity are appreciated but the proposal of the summary relates to the actual exchange losses of Rs17 billion incurred so far on the credit facility up to December 2, 2022, which has to be paid by the government sooner or later.
The PSO has made all outstanding payments delayed due to liquidity position exchange loss is; however, the liability of the government. in case, the credit facility is not extended by the Government of Kuwait, the last remittances will be short of required funds.
Copyright Business Recorder, 2022