Oil companies in cash-strapped Pakistan have warned that the industry is on the “brink of collapse” as the dollar liquidity crisis persists and their cost of doing business balloons due to the rupee’s devaluation.
The government removed the dollar cap to meet the International Monetary Fund’s (IMF) demand which resulted in the Pakistani rupee falling to a historic low of Rs 276.58 in the interbank market, according to a Geo News report.
The IMF has set several conditions for resuming the bailout, including a market-determined exchange rate for the local currency and an easing of fuel subsidies, both conditions which the government has already implemented.
In a letter to the Oil and Gas Regulatory Authority (OGRA) and Energy Ministry, the Oil Companies Advisory Council (OCAC) said that the “sudden depreciation” of the rupee has caused losses worth billions of rupees to the industry as their letters of credit (LCs) are expected to be settled on the new rates, “whereas the related product has already been sold”, it said.
The government has also restricted LCs due to dwindling foreign exchange reserves, which fell to USD 3,086.2 million as of January 27, just enough to cover only 18 days’ worth of imports, the report said.
Pakistan is facing a balance of payments crisis and the plummeting value of the local currency is pushing up the price of imported goods.
Energy comprises a large chunk of Pakistan’s import bill. The country typically meets more than a third of its annual power demand, using imported natural gas, prices for which shot up following Russia’s invasion of Ukraine.
