As the dollar liquidity crisis continues and their costs of doing business soar owing to the depreciation of the rupee, Pakistan’s oil corporations have issued a warning that the sector is on the brink of collapse.
The government lifted the dollar limit in response to the International Monetary Fund’s (IMF) demand which caused the rupee to plunge to a record low of Rs276.58 in the interbank market.
The Oil Companies Advisory Council (OCAC) claimed in a letter to the Oil and Gas Regulatory Authority (OGRA) and Energy Ministry that the sudden depreciation of the local rupee has resulted in losses to the industry amounting to billions of rupees because their letters of credit (LCs) are anticipated to be settled at the new rates whereas the related product has already been sold.
Due to the government’s decreasing foreign exchange reserves, which as of January 27 totaled $3,086.2 million and were sufficient for just 18.5 days, LCs have also been banned.
Due to the rupee’s sharp decline in value, Pakistan is experiencing a balance of payments crisis which is driving up the cost of imported commodities. A significant portion of Pakistan’s import bill is made up of energy.
OCAC has asked the government to urgently modify the method and ensure that exchange losses of the sector were completely repaid if the industry’s survival and supply to retail outlets are to be guaranteed.”
The council also noted that the trade financing restrictions offered by the banking sector to the industry had become inadequate as a result of rising oil costs and the consecutive devaluation of the Pakistani rupee over the previous 18 months.
According to the OCAC, the LC limits have decreased by 15 to 20 percent overnight as a result of the most recent devaluation alone.