The Oil Companies Advisory Council has issued an SOS letter to the Ministry of Petroleum and the Oil & Gas Regulatory Authority (OGRA), warning that the industry is in risk of collapsing unless immediate corrective action is done.
The council said that the rapid depreciation of the rupee had cost the industry billions of rupees because its Letters of Credit were expected to be settled at the new prices despite the fact that the linked goods had already been sold. The letter was delivered to the ministry and the OGRA.
Although compensation for foreign exchange losses is permitted for LCs for up to 60 days using PSO as a benchmark, it is suggested that prompt steps to reimburse the industry be devised. It was said that “these losses not only have an impact on the sector’s profitability, which is already under severe strain, but also on the sector’s viability.”
If the industry’s sustainability and supply of goods to retail outlets are to be ensured, this method must be altered rapidly and the sector’s currency losses fairly reimbursed.
According to the advisory group, the OGRA adopted a practise of imposing considerable costs on the sector while not fully passing on the impact of currency depreciation. “It is critical that OGRA passes the impact of currency rates in one go, rather than staggering this compensation,” it added. “This is owing to the sector’s ongoing challenges with earlier exchange rate adjustments, as well as the huge impact of the current devaluation.”
It went on to add that the banking sector’s trade finance restrictions had become insufficient as a result of the rise in oil prices and the gradual devaluation of the Pakistani Rupee over the previous 18 months. Only the most recent depreciation has resulted in LC limits dropping by 15-20% overnight.
It is critical to increase the industry’s trade finance / LC limits in accordance with current oil prices, exchange rates, and the quantities handled by each company in order to ensure the import of an adequate product into the country. It is strongly recommended that the State Bank of Pakistan promptly request that the banking industry boost the limits of our Member Companies.