Govt to make agreement with Azerbaijan for fuel supply
31 December, 2018
ISLAMABAD: The government has called a meeting of the Economic Coordination Committee (ECC) of the Cabinet on Tuesday to approve an agreement with Azerbaijan for fuel supply on credit and consider measures to stop rising urea prices despite import of the commodity.
Finance Minister Asad Umar will preside over the ECC meeting that would also review a status report on export of public sector wheat stocks, arrangement of funds for payment of dues to personnel of the Pakistan Machine Tool Factory and allocation of additional quantities of gas production from the Adhi gas field to the Sui Northern Gas Pipelines Limited.
The two sides had entered into an inter-governmental agreement (IGA) in February 2017 for supply of a number of oil and gas products, including furnace oil, petrol, diesel and liquefied natural gas (LNG). The PSO and SOCAR are now expected to formally sign a commercial agreement for supply of motor gasoline (petrol) against a 4-6 month credit facility of $100-150 million.
The sources said the demand for furnace oil had since tumbled in Pakistan as its LNG imports streamlined, while the PSO already had a long-term supply contract with the Kuwait Petroleum Company (KPC) for diesel on credit. They said SOCAR had an oil facility in Dubai from where it had the capability to supply petrol to the PSO through a swap arrangement given the fact that the former Soviet republic was landlocked and only oil and gas exited through Turkey-Georgia pipeline named Baku-Ceyhan-Tblisi pipeline.
Pakistan has been seeking oil supplies on deferred payments from two major sources — Saudi Arabia and the United Arab Emirates — to secure foreign exchange cushion direly needed to support the declining reserves. It has already secured a $3 billion oil facility per annum from Saudi Arabia that would actualise in January at a rate of about $375m per month. A similar arrangement is currently under process with the UAE.
An official said there was no comparison between oil facilities from Saudi Arabia and the UAE and the credit line from Azerbaijan, but it was an indication of deepening relationship with a friendly nation and some respite to the PSO which was facing tough financial positions mostly because of a deep-rooted circular debt stemming from power sector’s non-payments.
The two nations have been supporting their respective positions on issues of Kashmir and Nagorno-Karabakh at all international forums.
Pakistan and Azerbaijan had nominated their state-run firms — PSO and SOCAR — to enter into commercial agreements on a government-to-government basis without going through procurement rules given relaxed payment facility and competitive premium costs following the IGA signed by the energy ministers of the two countries in February 2017.
It, however, took a long time to get through the approval process of the PSO board of directors because of issues relating to logistics and procurements. The sources said SOCAR was ready to extend $100-150m revolving credit line without any sovereign guarantee as a sign of friendly relations between the two nations.
Azerbaijan is a major oil producer with daily production bordering one million barrels.
The sources said the ECC would also take up the issue of rising urea prices despite import of about 100,000 tonnes of the commodity this month. Urea prices have gone beyond Rs1,850 per 50kg bag, even though the ECC had fixed it at Rs1,712 about a week ago and less than Rs1,400 in December 2017.
The sources said the Ministry of Industries had a few days ago asked provincial chief secretaries to launch a crackdown on the hoarders to bring down fertiliser prices, but stakeholders opposed the move.