Oil Companies Advisory Council (OCAC) has highlighted severe impact of Pakistani Rupee (PKR) depreciation on the oil industry in a letter sent to the energy ministry and Oil and Gas Regulatory Authority (OGRA).
The OCAC stated that the sudden depreciation of the Rupee has caused a loss of billions of Rupees to the industry, whose Letters of Credits are expected to be settled on the new rates whereas the related product has already been sold.
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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. It is requested that immediate steps to compensate the industry should be devised.
Although compensation for foreign exchange losses is allowed for LCs up to 60 days using PSO as a bench mark as per ECC approval of 1 April 2020, our other 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.
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OG RA has adopted the practice of not fully passing on the impact of Rupee depreciation and instead putting 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.
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Due to increase in oil prices and successive depreciation of the Pakistani Rupee over the last 18 months, the trade finance limits available from the banking sector to the industry have become inadequate. As a result of the recent devaluation alone, the LC limits have overnight shrunk by 15-20 per cent.
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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.
The industry is on the brink of collapse if immediate steps are not taken in respect of the above, it added.