Pakistan Likely To Face Severe Fuel Shortage In February Amid Economic Turmoil, Depleting Forex Reserves: Report

The falling value of the Pakistani rupee is making it more expensive to buy goods from other countries.

Vehicles waiting for their turn to get fuel at a petrol station. ( Image Source :File Photo/Getty )

New Delhi: According to traders and industry sources, Pakistan could run out of fuel in February because banks have stopped financing and facilitating import payments due to dwindling foreign exchange reserves, reported news agency Reuters. The country in South Asia is having problems with its balance of payments, and the falling value of the Pakistani rupee is making it more expensive to buy goods from other countries. Pakistan's import bill is largely made up of energy.

Pakistan typically uses imported natural gas to meet more than a third of its annual power demand. The cost of this gas increased after Russia invaded Ukraine.

"There is no shortage this fortnight. If we don't have LCs (letters of credit) open right now, we might see shortages in the next fortnight," a senior official at one of the oil companies told Reuters.

In the oil trade, a typical form of payment guarantee to the exporter is a letter of credit issued by the importer's banks.

However, due to a severe lack of foreign currency, oil traders are avoiding Pakistan and Sri Lanka. Pakistan raised the price of gasoline and diesel on Sunday by 16 percent, reaching 249.80 Pakistani rupees ($0.9373) per liter. Additionally, the country is in negotiations with the International Monetary Fund (IMF) in an effort to reopen a bailout package that has been held up.

In the past few months, a slew of fuel tenders has not been awarded by Pakistan LNG Ltd. and Pakistan State Oil (PSO), both of which are owned by the state.

According to a Reuters review of a January 19 letter from Imran Ahmed, director general of oil, officials at the State Bank of Pakistan cited "severe liquidity issues" for delays in the opening of LCs at an industry meeting on the financial challenges faced by fuel importers.

The managing director of PSO stated at the same meeting that the non-opening of LCs had already resulted in the cancellation of a gasoline cargo that was scheduled to be loaded on January 13. According to the letter, he added that the country has limited stocks, which could result in dry conditions.

In the past, Pakistan's refining, pipeline, and marketing companies were represented by the Oil Companies Advisory Council (OCAC), which noted that delays in the opening of LCs could "lead to a fuel shortage in the country."

Pakistan must import approximately 430,000 tonnes of gasoline, 200,000 tonnes of diesel, and 650,000 tonnes of crude oil each month, at a cost of $1.3 billion, to meet local demand, according to an OCAC letter dated January 13 to the Ministry of Finance.

According to the OCAC, "If LCs are not established on a timely basis, critical imports of petroleum products would be impacted which may lead to a fuel shortage in the country."

According to Kpler data, Pakistan only purchased 223,000 tonnes of gasoline in December, compared to 608,000 tonnes the previous year. According to the data, the country was expected to import 270,000 tonnes of fuel in January of this year, compared to 393,000 tonnes in the same month in 2022.

SBP did not respond to a Reuters email for comment, and some banks have denied delays in LC issue.

"If there are no issues with LCs in Pakistan then why was the SBP (State Bank of Pakistan) and sector been holding meetings all of last week?" a high-ranking employee of one of the oil companies stated.

Last week, the PSO stated that it had ample stocks and was ensuring a continuous supply of gasoline and gasoil across the nation.

It also stated that its import cargoes were arriving on time and without incident.