OCAC writes letters to governor SBP, chairman Ogra: Temporary approval of CIF imports with war-risk premium allowance sought
ISLAMABAD: The Oil Companies Advisory Council (OCAC) has sought temporary approval of CIF imports with war-risk premium allowance for crude oil, refined petroleum products, base oil and allied material in light of the ongoing Middle East conflict.
In a letter to Governor SBP, Jameel Ahmad, Secretary General, OCAC, Dr Syed Nazir Abbas Zaidi stated that due to the rapidly evolving geopolitical situation in the Middle East, the international oil and shipping markets have become extremely volatile. Freight rates, insurance costs and availability of vessels have been severely impacted.
Further marine insurers have either withdrawn or sharply increased war-risk coverage for ships operating in the Persian Gulf and Strait of Hormuz. Freight rates for vessels operating in the Gulf region have reportedly increased almost four times, while war-risk Insurance premiums for Gulf voyages have surged dramatically, making tanker chartering extremely difficult and expensive. The prevailing market conditions have severely limited the willingness of shipowners, insurers and suppliers to undertake cargo movements in the region.
Under the current regulatory framework, importing refineries and OMCs are required to import products on a C&F (Cost and Freight) basis, under which the supplier arranges and pays for freight up to the destination port, while the buyer is responsible for arranging and bearing the cost of product insurance, including any war-risk coverage.
In the prevailing circumstances, obtaining adequate marine and war-risk insurance cover has become extremely difficult. This challenge was recently reflected in the PSO spot tender floated on the Gallop platform on a C&F basis, where no bids were received for MS, HSD, and JP-1 cargoes.
In view of the existing constraints in arranging insurance under C&F terms, it is proposed that imports be temporarily allowed on a CIF (Cost, Insurance and Freight) basis. As per the State Bank of Pakistan’s (SBP) Foreign Exchange Manual, Chapter 13 - Imports “we understand that approval for CIF imports is required on a case-to-case basis. However, given the exceptional circumstances and the potential risk to national fuel supply, it is requested that a temporary general allowance be granted for petroleum cargoes (Crude Oil, Refined Petroleum Products, Base Oil & Allied Materials) for a period of up to two months,” the letter argued.
Under CIF arrangements, the supplier is responsible for arranging freight as well as marine /product insurance (including war-risk coverage) as part of the delivery of cargo to the destination port, which would enable suppliers to secure appropriate insurance coverage and facilitate the movement of cargoes under the prevailing market conditions.
“Given the critical importance of ensuring uninterrupted fuel supplies ahead of the upcoming agricultural season and safeguarding national energy security, your kind consideration and early issuance of the necessary approval/advisory to all commercials banks for allowing CIF imports of petroleum products (Crude Oil, Refined Petroleum Products, Base Oil & Allied Materials) on an interim basis of up to two months is earnestly requested, so that refineries and OMCs may proceed with booking and securing the required cargoes,” the letter stated.
Facilitation of the above measures will enable the oil industry to effectively secure cargoes under the prevailing market conditions and ensure timely and uninterrupted availability of fuel supplies across the country.
In a separate letter to the chairman OGRA, the OCAC drew OGRA’s attention to operational challenges currently being faced by petroleum retail outlets across various parts of the country due to a sudden surge in fuel demand. Over the past few days, member Oil Marketing Companies have observed an unusual increase in retail fuel offtake, primarily driven by panic buying amid prevailing regional uncertainties. In several locations, sales volumes have nearly doubled compared to normal demand levels. While the OMCs have significantly increased dispatches and are making continuous efforts to replenish retail outlets, the abnormal demand has resulted in temporary stock depletion at certain stations pending tanker deliveries.
The OCAC has been informed that in some districts, local administrations have initiated actions to seal retail outlets that temporarily run out of fuel. While the intent to ensure availability and prevent malpractice is appreciated, sealing outlets facing genuine stockouts under such extraordinary demand conditions is counterproductive and may further disrupt the supply chain.
Such actions delay the resumption of sales upon replenishment, create operational complications for OMCs, and may inadvertently intensify public anxiety and panic buying.
In view of the above, the OCAC requested OGRA’s intervention to advise the relevant provincial and local administrations to refrain from sealing retail fuel stations solely due to temporary stock depletion where replenishment is already in process.
“Timely regulatory guidance will help ensure smooth functioning of the retail supply network and uninterrupted availability of petroleum products to consumers, our member companies remain fully committed to maintaining uninterrupted fuel supply across the country,” said secretary general OCAC.
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