WEB DESK
Oil marketing firms in the country have sounded alarm over the availability of petroleum products with the sudden and drastic depreciation of the rupee apart from the shortage of the US dollar, leaving them in a tough spot.
In a letter by the Oil Companies Advisory Council – a collective for oil marketing companies (OMCs) – Secretary General Syed Nazir Abbas Zaidi to the Oil and Gas Regulatory Authority (OGRA) chairman and Ministry of Energy – Petroleum Division Secretary, the letter noted that their members were facing severe impacts of the depreciation of the rupee.
Seeking an urgent meeting to discuss the way forward, they pointed out how the depreciation of the rupee, which lost around Rs32 in a single week, had caused a loss of billions of rupees to the industry.
“Letters of Credit are expected to be settled on the new rates, whereas the related product has already been sold (on old rates),” Zaidi said.
“These losses not only have an impact on the profitability of the sector, which is already under severe pressure but also on the viability of the sector since these losses in some cases might exceed the entire year’s profit for the sector.”
The OMCs sought immediate steps to compensate the industry.
It noted that an April 2020 decision of the Economic Coordination Committee (ECC) of the federal cabinet had allowed compensation for foreign exchange losses. However, this was capped for LCs for up to 60 days using the Pakistan State Oil (PSO) as a benchmark.
But other OMCs cannot recover their losses due to import profile differences with PSO.
“It is requested to urgently revise this mechanism and ensure that exchange losses of the sector are fully reimbursed if the viability of the industry and supplies to retail outlets are to be ensured.” the companies demanded.
Further, the OMCs claimed that OGRA had adopted the practice of not fully passing on the impact of rupee depreciation and instead placed an immense burden on the sector.
“Due to the challenges still being faced by the sector of previous exchange rate adjustments and the enormous impact of the current depreciation, it is crucial that OGRA passes the impact of the exchange rates in one go and not stagger this compensation,” they demanded.
The OMCs further claimed that the trade finance limits available from the banking sector for the oil industry following the rupee depreciation and global increase in oil prices have become inadequate.
“As a result of the recent devaluation alone, the LC limits have overnight shrunk by 15-20%,” the companies said.
To ensure the import of adequate oil products into the country, the OMCs said the government must increase the trade finance and letters of credit limits for the industry in line with the current oil prices, exchange rate and the volumes being handled by each company.
“It is requested that the banking sector be immediately requested through the State Bank of Pakistan to enhance the limits of our member companies,” Zaidi said, warning that the industry was on the brink of collapse. Unless immediate steps are taken, it could lead to the dire situation around the country.