KARACHI: The oil sector on Wednesday warned that it may be forced to halt petroleum imports, posing serious risks to the country’s fuel supply chain if the issue of bank guarantees (BGs) remains unresolved.
The Sindh excise, taxation and narcotics control department has directed oil companies to submit BGs before the release of petroleum consignments.Furthermore, the department has unilaterally placed responsibility for any fuel shortages arising from non-compliance with its directive on the industry, the Oil Companies Advisory Council (OCAC) said in a letter to the secretary of the Petroleum Division.
Referring to the BGs, the oil body said this had been a long-standing issue for the industry, recurring periodically without resolution. “We have repeatedly sent letters in this regard to your good office. Whilst the vires of the Sindh Infrastructure Development Cess (SIDC) remain sub judice before the Supreme Court (SC) of Pakistan, the court passed an interim order dated 1 September 2021 requiring BGs to be furnished against all imports to enable their clearance,” the OCAC said.
However, it added, the interim order, being general in nature, applies to all imports into Sindh and does not take into account the scale and nature of petroleum consignments, which range between Rs15 billion and Rs25 billion per shipment. With approximately 20-25 consignments imported per month, the quantum of SIDC and the corresponding BGs is so substantial that no company in the sector has the financial capacity to furnish guarantees of this magnitude.
The OCAC said the requirement to submit BGs was financially unsustainable due to limited credit lines and the industry’s heavily regulated structure with razor-thin margins.
It recommended that the governments of Sindh and Balochistan be persuaded to grant exemptions from the infrastructure development cess (IDC) on all petroleum products, similar to the exemption granted by the Punjab Revenue Authority (PRA). If a resolution cannot be reached between the federal and provincial governments as proposed, the OCAC suggested including the IDC in fuel pricing and devising a mechanism to account for past IDC dues.
“If an urgent resolution is not reached and the industry is unable to get its cargoes released in a timely manner, it will simply not be able to import future shipments. Any subsequent supply chain impact cannot be attributed to the industry, which has been urging the authorities to resolve this issue for many years,” the OCAC said, seeking prompt government intervention to ensure uninterrupted fuel supplies and the financial sustainability of the downstream sector.
