Pakistan has secured a $4.5 billion worth of three-year trade financing facility from Jeddah-based Islamic Trade Finance Corporation (ITFC) to hide the import cost of crude, petroleum products, and liquefied gas (LNG).
A formal financing framework agreement on the arrangement would be signed early next week here, informed sources told Dawn. The funds would be utilized under the Annual Financing Plan of roughly $1.5bn each. This trade financing arrangement is additionally to about $531 million already signed by the Ministry of Economic Affairs with Saudi Fund for Development (SFD) for project financing of Mohmand dam, a couple of coal-based projects besides a few hydropower projects including two in Azad Kashmir.
The ITFC’s financing would be utilized over three years (2021-23) by Pak-Arab Refinery Ltd (Parco), Pakistan State Oil (PSO), and Pakistan LNG Ltd (PLL) for import of petroleum, refined petroleum products, and LNG and help augment the country’s foreign currency reserves and supply resources to satisfy the oil import bill.
Pakistan’s oil import bill has amounted to about $10bn in the first 11 months of the present financial year but has been rising in recent months due to an increasing trend within the international oil prices. In the first 11 months, Pakistan has imported about $2.5bn each worth of LNG and petroleum besides $4.5bn worth of refined petroleum products.
ITFC may be a member of the Islamic Development Bank Group and provides trade financing to member countries after producing funds from financial institutions within the Middle East. The sources said Pakistan had last year signed a $1.1bn trade financing facility for the present year but couldn’t be fully utilized thanks to lower international oil prices, depressed demand in Pakistan, and limitations of the refineries in availing Arabian Crude.
The sources said the financing cost for the upcoming financing facility would be less than the prevailing one given substantial surplus liquidity of the banks within the United Arab Emirates and Saudi Arabia due to constrained business activities within the wake of the ongoing Covid-19 wave. the prevailing facility envisaged 2.3pc plus London Inter-Bank Offered Rate (Libor).
The source said the 2 sides may cover the agricultural commodities also including DAP fertilizer additionally to the existing pipeline of crude, oil products, and liquefied gas. The sources said the ITFC had also committed in April 2018 an identical financing line for Pakistan for 2018-20 but utilization finally couldn’t cross $3bn as private refineries were unable to import crude under the power because it was mostly limited to Parco and to some extent PSO.
Before 2018, the ITFC’s financing was available only to Pak-Arab Refinery which was expanded to Pakistan State Oil in 2018. Last year, PLL was also included within the arrangement for the primary time. ITFC had a limited portfolio of a few billion dollars of its own and normally arranged funds from other private financial institutions. a number of the opposite major recipients of the ITFC’s trade facility are Indonesia, Egypt, and Bangladesh.
The facility is predicted to supply relief in oil and gas import bills and ease pressure on exchange reserves. Under the power, funds don’t inherit Pakistan’s account but ease pressure on exchange reserves. These funds would be used for financing letters of credit for oil and LNG imports by PSO, Parco, and PLL.