Pakistan hits a new low as oil firms issue 'on the brink of collapse' warning

Famished Pakistan’s oil firms issued a warning saying their industry is on the “brink of collapse” as the dollar liquidity crisis continues and their cost of doing business soars as a result of the devaluation. 

The Pakistani rupee hit a historic low of 276.58 in the interbank market after the government removed the dollar cap in response to the International Monetary Fund's (IMF) demand, according to reports. 

For the bailout to resume, the IMF has set a number of conditions, including a market-determined exchange rate for the local currency and a reduction in fuel subsidies, both of which the government has already implemented.

OCAC writes to OGRA on “sudden depreciation”

The Oil Companies Advisory Council (OCAC) wrote to the Oil and Gas Regulatory Authority (OGRA) and the Energy Ministry stating that the "sudden depreciation" of the rupee has resulted in losses to the industry amounting to billions of rupees as their letters of credit (LCs) are expected to be settled on the new rates, "whereas the related product has already been sold."

The letter stated that the government has also put restrictions on LCs because of the declining foreign exchange reserves, which as of January 27 plummeted to USD 3,086.2 million, barely enough to fund 18 days' worth of imports.

Pakistan experiencing balance of payments crisis 

Pakistan is experiencing a balance of payments crisis, and the rising cost of imported products is being exacerbated by the local currency's sharp decline in value.

A significant portion of Pakistan's import bill is made up of energy. The nation generally imports natural gas, the cost of which skyrocketed after Russia's invasion of Ukraine, to cover more than one-third of its yearly electricity needs.

The OCAC claims that these losses not only have an effect on the sector's viability, which is already under great pressure, but also on its profitability, since some of these setbacks may exceed the "entire year's earnings for the sector."

"Although compensation for foreign exchange losses is allowed for LCs up to 60 days using PSO as a benchmark as per ECC approval of April 1, 2020, our other Member Companies are unable to recover their entire losses due to import profile differences with PSO," said OCAC. 

Oil refinery alerts petroleum division 

Soon after the letter was sent, the petroleum division was alerted by the oil refinery Cnergyico that it will suspend operations for more than a week. 

"This is to inform your office that Cnergyico refinery shall go for shutdown from February 2, 2023 and will restart production from February 10, 2023, in line with our Crude oil vessel arrival timeline," the statement said.