Saudi Arabia to revive deferred oil facility to Pakistan: Fawad Chaudhry

• Details of the deal will be known once the two sides formally sign the agreement.
• Resumption of oil on deferred payments expected to be a huge sigh of relief for budget makers in Pakistan.
• Saudi Arabia's deferred oil facility to help govt in tackling its external debt problems.

ISLAMABAD: Saudi Arabia has agreed, in principle, to revive the facility of oil supply to Pakistan on deferred payments, revealed information minister Fawad Chaudhry on Tuesday.

The prime minister, on his recent visit to the kingdom, had made a request to Saudi Arabia to resume the supply of oil to Pakistan on deferred payments for an extended period.

The exact details of the deal between the two countries will be known later when there is a formal agreement. When contacted, Chaudhry confirmed the two sides had agreed to it.

"Yes, it's almost done," he had said.

Islamabad is vying for all available alternative plans to overcome its external account problems. The resumption of the deferred oil facility by Saudi Arabia can go a long way to get the desired results.

The development comes at a time when Pakistan is negotiating with the International Monetary Funds (IMF) to ensure it does not burden its masses by increasing taxes and hiking power tariffs again to repay loans.

Pakistan’s budget makers for the next fiscal year 2021-22 will get a sigh of relief in the wake of an agreement with Riyadh for resumption of Saudi Oil Facility (SOF) from the three to-five-year period.

Earlier, Saudi Arabia had provided a $6 billion financial package, including $3 billion deposits into the State Bank of Pakistan, and the remaining $3 billion for oil facility on deferred payment on an annual basis.

The previous oil facility from KSA was signed for three years during the visit of Saudi Crown Prince Mohammad Bin Salman to Pakistan. This facility was made operational from July 2019 with the understanding that the first-year bill would be paid on monthly basis and then second-year oil would be obtained on deferred payment.

So, this whole facility would be ended in the fourth year upon the maturity of getting oil for the third year. It was assessed at that time that Pakistan would require $275 million oil facility on monthly basis from the KSA, so it accounted for $3.2 billion on per annum basis for three-year period.

Such facility was agreed upon for three years with the possibility of rollover of second and then third year. Both sides had agreed that this facility would be provided through the IDB’s Islamic Trade Finance Facility (ITFC). It is not known how much Pakistan had availed from the SOF in its first year, but then this facility got suspended.

The IDB had also agreed to provide $1.5 billion oil facility on deferred payment, so in totality there was a provision of $4.7 billion oil on deferred payment.

It was an irony that out of $4.7 billion facility on deferred payment from both sides, Pakistan could hardly utilise around 30 per cent or $1.5 billion in the fiscal year 2019-20. Pakistan utilised over $700 million from the SOF and around $800 million from ITFC.

The ITFC facility could not be utilised fully because of inefficiencies of both sides. The IDB had agreed to facilitate financing from the Gulf banks and because of mismatch in requirement, this facility could not be exhausted fully.

“The exchange rate variation, reduced oil prices and certain specific chemical used in crude oil made it hard for Islamabad to utilise the whole oil facility from both sides,” said a top official dealing with this issue.

He added that the government had made efforts to finalise arrangements with private refineries but failed to do so because of various hitches. Now the government will have to create incentives for private refineries to utilise the SOF related crude oil, so that it could be utilised fully.

The government would have to convince the refineries to utilise this facility fully or it would remain a futile exercise to get this support from the brotherly country, the official concluded.

Originally published in The News