The Oil Companies Advisory Council (OCAC) has expressed concern about the recent depreciation of the Pakistani Rupee and has requested an urgent meeting between the government and the industry to discuss the situation and agree on a course of action.
OCAC stated earlier this week that the sudden depreciation of the rupee has caused billions of dollars in losses to the industry, whose Letters of Credit (LCs) are expected to be settled on the new rates despite the fact that the related product has already been sold.
These losses have an impact not only on the sector’s profitability, which is already under severe pressure, but also on the sector’s viability, as these losses may exceed the sector’s entire year’s profit in some cases. OCAC has asked for immediate compensation for the industry. “Although compensation for foreign exchange losses is permitted for LCs for up to 60 days using PSO as a benchmark 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,” the statement said.
The industry liaison pleaded for an urgent revision of this mechanism to ensure that the sector’s exchange losses are fully reimbursed if the industry’s viability and supply to retail outlets are to be ensured.
OCAC also claimed that OGRA has taken the practise of not fully passing on the impact of rupee depreciation, instead imposing a massive burden on the sector. Due to the challenges that the sector is still facing as a result of previous exchange rate adjustments, as well as the enormous impact of the current depreciation, it is critical that OGRA passes the impact of exchange rates in one go, rather than staggering this compensation.
“In order to ensure the import of adequate products 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 to increase the limits of our Member Companies through the State Bank of Pakistan,” OCAC added.
It warned that the oil industry is on the verge of collapse if the aforementioned measures are not taken immediately.