Rupee depreciation pushing Pakistan's oil industry to brink of collapse, warns OCAC

KARACHI – The Oil Companies Advisory Council (OCAC), which represents the downstream oil industry in Pakistan, on Friday cautioned the government that ongoing deprecation of the Pakistani rupee against the US dollar has pushed the oil industry to the brink of collapse.

In a letter sent to the Secretary Ministry of Energy- Petroleum Division, and chairman Oil & Gas Regulatory Authority (OGRA), the body has urged the officials for an urgent meeting to discuss the situation.

“As you are aware, the sudden depreciation of the rupee has caused a loss of billions of rupees to the industry, whose Letters of Credits (LCs) are expected to be settled on the new rates whereas the related product has already been sold,” the letter said.

It highlighted that oil industry suffered severe losses due to the fluctuation of the exchange rate, besides expressing fear that the losses could exceed the entire year's profit for the sector.

“It is requested that immediate steps to compensate the industry should be devised,” said OCAC.

It said that although compensation for foreign exchange losses is allowed for LCs up to 60 days using PSO as a benchmark as per Economic Coordination Committee (ECC) approval of 1 April 2020, its member companies are unable to recover their entire 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,” said OCAC.

“As a result of the recent devaluation alone, the LC limits have overnight shrunk by 15-20%. In order to ensure import of adequate product into the country, it is important to increase the trade finance / LC limits of 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,” it added.

“The industry is on the brink of collapse if immediate steps are not taken in respect of the above,” it said.

Rupee hits record low against US dollar at 278