ISLAMABAD: Pakistan and the International Islamic Trade Finance Corporation (ITFC) – a subsidiary of the Islamic Development Bank – on Monday signed a new $ 4.5 billion framework agreement to finance oil imports, of LNG and fertilizer over the next three years (2021-2023).
The new framework agreement “provides financing for the import of essential commodities such as crude oil, refined petroleum products, LNG and urea,” the Ministry of Economic Affairs (MEA) announced shortly after the signing of the agreement.
The agreement was formally signed by ITFC Chief Engineer (CEO) Hani Salem Sonbol and Economic Affairs Division (EAD) Secretary Noor Ahmed in the presence of MEA Minister Omar Ayub Khan. .
The funding available through this facility will be used by Pakistan State Oil (PSO), Pak-Arab Refinery Ltd (Parco) and Pakistan LNG Ltd (PLL) for the import of crude oil, refined petroleum products and LNG over the years. 2021-2023.
As part of its integrated business solutions approach, the framework agreement also covers ITFC’s support for trade-related technical assistance projects, which will be jointly selected by the two parties based on national economic priorities and the market. Pakistan’s development plan, EAD explained.
The agreement will also facilitate the identification of other areas of cooperation at the national and regional levels and will improve and promote trade, the trade capacities of relevant state authorities and financial institutions and trade cooperation in the country.
The ITFC had also committed in April 2018 a similar line of financing for the country for the period 2018-20, but their use was ultimately not able to exceed $ 3 billion, as private refineries were not able to ‘importing crude as part of the installation and installation remained mainly limited to Parco. and to some extent to PSO.
During the signing ceremony, Eng Sonbol said the framework agreement reflects the importance of the long-standing cooperation between ITFC and the Pakistani government. “ITFC continually works closely with its member countries to meet their needs by providing integrated solutions that include funding and capacity building tools that help maximize the impact of ITFC interventions on development. .
Minister Khan thanked ITFC for arranging funding “at a very difficult time” to help Pakistan meet its oil and LNG import needs and ease pressure on the country’s cash reserves. . “We are delighted and will continue to mobilize financial resources to support Pakistan in its efforts to achieve its economic goals through the new framework agreement,” he said, adding that the partnership between Pakistan and the ITFC would strengthen.
ITFC funding would be used over three years (2021-2023) by Parco, PSO and PLL for the import of crude oil, refined petroleum products and LNG and would help increase the country’s foreign exchange reserves and provide resources to meet the oil import bill.
Pakistan’s oil import bill amounted to around $ 10 billion in the first 11 months of the current fiscal year, but has increased in recent months due to the upward trend in international oil prices . In the first 11 months, Pakistan imported about $ 2.5 billion each in LNG and crude oil, in addition to $ 4.5 billion in refined petroleum products.
ITFC is a member of the Islamic Development Bank Group and provides trade finance to member countries after raising funds from financial institutions in the Middle East. The sources said Pakistan signed a $ 1.1 billion trade finance facility for the current year last year, but could not be fully utilized due to the drop. international oil prices, declining demand in Pakistan, and refineries’ limitations on using Arab crude.
The sources said that the cost of the next financing facility would be lower than the existing one given the substantial excess liquidity of banks in the UAE and Saudi Arabia due to limited business activities following the wave of Covid- 19 in progress. The existing facility provided for 2.3 pc plus the interbank rate offered in London.
Posted in Dawn, June 29, 2021