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ISLAMABAD: The federal cabinet is likely to discuss the possibility of renewal of an agreement between Pakistan and Saudi Arabia for provision of $.3.2 billion worth of oil on deferred payment in a meeting scheduled for Tuesday (today), sources in petroleum division told Business Recorder.

Sources in Saudi Development Fund (SDF) in Pakistan when asked said that no official decision for continuation of oil on deferred payments agreement has been taken so far by Saudi Arabia, adding that the kingdom has not stopped oil supply to Pakistan but has suspended the deferred payment facility.

The agreement expired in May 2020 and the decision about its renewal remains pending with Saudi Arabia. Under the agreement, SDF was paying in dollars to Aramco while Pak Arab Refinery Ltd (Parco) and National Refinery Limited (NRL) were placing orders for import from Saudi Aramco and depositing an equivalent amount in PKR with State Bank (SBP). The SBP was paying to SDF 12 months later, an official of Pakistan State Oil (PSO) told Business Recorder.

Pakistan imports 70 percent of its crude oil from Saudi Arabia while the rest is sourced from Abu Dhabi, the UAE. PSO has a long-term contract with Saudi Aramco on supply of 110,000 barrels per day (bpd) with Parco's quota of 60,000bpd and NRL's of 50,000bpd. From March 26 to April 26 2020, the slump in global oil demand in the wake of coronavirus pandemic led to closure of oil refineries in Pakistan and the government directed oil marketing companies (OMCs) and oil refineries to cancel orders for import of petrol and crude oil.

On Sunday, Saudi Aramco stated that the second quarterly 2020 earnings plunged more than 73 percent compared to 2019, as lockdowns imposed to curb the coronavirus pandemic drastically cut the demand for oil.

Sources in the finance ministry on condition of anonymity further said that oil facility on deferred payment was not fully utilized during the last fiscal year because of low demand of petroleum products in the country during lockdown and a slump in economic activities following the COVID-19 pandemic. They added that public transport and other activities where petroleum consumption was essential were also massively curtailed during the lock-down.

An official of SBP said its role was limited to making payment on the invoice submitted by the oil importing agency.

As per Pakistan Bureau of Statistics (PBS), demand for oil and products declined by 27.8 percent due to Covid-19 while motor fuel price declined by 9.79 percent and liquefied hydrocarbons year on year by 3.65 percent however PBS data reveals that Pakistan's imports under petroleum group in 2019-20 were $ 10.42 billion and included $4.74 billion petroleum products, $ 2.722 petroleum crude, $2.66 billion natural gas liquefied and $.294 billion petroleum gas liquefied.

With the deferred oil facility maturing after one year Pakistan has requested for an extension.

Prime Minister Imran Khan led a delegation to Saudi Arabia on October 2018 and announced the Saudi facility to be $ 3.2 billion in any given year to be extended for three years. However, Saudi Arabia is highly reticent about announcing its assistance.

In May 2019, Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh had announced through his twitter that "from July 1, 2019 KSA is activating the deferred payment for petroleum products facility of $275 million per month amounting to $3.2 billion per year for three years".

Copyright Business Recorder, 2020