Is it ok to start thinking lower petroleum import bill in the country? Maybe not. Improving current account deficit, local refineries buckling amid fuel transition away from furnace oil and some major international interests in the country in increasing and upgrading the country’s refining capacity started lifting hopes that maybe the reliance on imported fuel and hence inflated import bill can be decreased. But some key developments and sector dynamics do little to support the above argument.
For one, the import bill might have fallen but not for oil. Petroleum import bill increased by 6.7 percent year-on-year during 8MFY19, while the overall import bill was down by over six percent, year-on-year, with share of oil imports in the total increasing from 23 percent to 26 percent in the period. And going forward, oil prices are likely to do little to contain the oil import bill as global crude oil prices bulls seem to have taken over the bears – the latest coming from Saudi Arabia continuing to cut production and crude oil imports amid the postponement of the much awaited April OPEC meeting.
Second, while volumetric growth in petroleum products has slowed down led by furnace oil (FO, HSD and MS volumes down by 91, 32 and 6 percent, respectively), the coming summer season will ask for an increase in consumption including that of furnace oil as power sector demand rises.
Of the reasons for no breather likely for the oil imports, the most unfortunate one is the failure of the country to receive $3.2 billion oil deferred payments facility from the UAE, reportedly promised by the UAE Crown Prince in his recent visit to Pakistan. This deferred oil facility was part of the $6.2 billion UAE had announced in December for the country. Of the remaining $3 billion, it has transferred $2 billion cash to SBP, while $1billion is expected still to come.
Much was hoped from the Middle Eastern interest shown in the country’s oil and gas refining segment earlier this year. However, by how the much-hyped deferred oil payment promise from UAE has panned out and looking historically at how many promises (with nothing on paper) have rendered futile, hopes for other investments could turn out to be damp squib.
Not only the cancellation of $3.2 billion has raised qualms about the expected one billion dollars, but also the interest shown in setting up a $6 billion deep conversion refinery in the country. Also, it leaves a gap in the balance of payment situation, improvement of which was also being partly pinned to the deferred oil facility. Moreover, in case of a domino effect where refinery investment also remains in limbo, no relief in oil imports would be in sight that the deep conversion refinery could bring in.
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