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Pakistan Face The MBS Wall As Riyadh Halts $3.2B Oil Facility for Pakistan

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Pakistan faced a setback in obtaining bailout package from Saudi Arabia worth $3.2 billion as Riyadh, led by Crown Prince Mohammed Bin Salman (MBS) want modifications to the deferred oil and gas payments offered to Islamabad.

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The two countries had inked a financing agreement for the import of petroleum products, crude oil and LNG on February 17 this year during the Saudi crown prince’s Islamabad visit.

Now, the petroleum division has tabled a summary before the Economic Coordination Committee (ECC) on an urgent basis asking it to relax rules so the deferred payment facility could be availed to ease pressure on the country’s foreign exchange.

Under the financing agreement, the Pakistani government would import crude oil, LNG and petroleum products from Saudi Arabia costing around $ 3.2 million annually – that amounts to $270 million per month on a 12-month deferred payment basis.

However, the agreement may be extended to cover two more years if the two parties consent to it. The Pakistani government would provide an unconditional and irrevocable sovereign financial guarantee.

However, Islamabad not been able to move ahead with this deal as Saudi Arabia does not want the Pakistani Oil and Gas Regulatory Authority (Ogra) and another agency the Hydrocarbon Development Institute of Pakistan (HDIP) involved in the testing of petroleum products to be imported from the Kingdom under the deferred payment facility.

Under the agreement, the Pak-Arab Refinery Company (Parco) and the National Refinery Limited (NRL) would procure crude oil from the Saudi Aramco Product Trading Company. Similarly, the Pakistan State Oil (PSO) and the Pakistan LNG Limited (PLL) would procure petroleum products and LNG from the Saudi company respectively.

Parco and the NRL are already procuring crude oil from Saudi Arabia under long-term arrangements while PSO will have to enter a sale purchase agreement with Saudi Aramco for the import of petroleum products.

The PSO is a public sector company and bound to import petroleum products in line with the provision of the Public Procurement Rules 2004. It cannot follow the condition of an open competitive bidding under the financing agreement. However, rule-5 of the public procurement rules provides an exemption in cases where the federal government is involved in international and inter-governmental commitments.

The HDIP laboratory tests products at the discharge port prior to unloading. However, while negotiating the terms and conditions of the sales purchase agreement with the PSO, Saudi Aramco has insisted that the procurement should be based on the cost, insurance and freight (CFR/CIF)) terms in line with the International Chamber of Commerce’s Incoterms 2000. Under these terms, the quality would be determined and finalised at the load port based on the test results of an independent laboratory.

If Pakistan accepts this condition, the existing procedure for sampling and testing of imported petroleum products by Ogra would have to be relaxed in the case of supplies arranged by the PSO from Saudi Arabia.

Therefore, the petroleum division is seeking a waiver from the ECC to secure the deferred payment facility.

More News at EurAsian Times

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