ISLAMABAD: Authorities have been unable to operationalize a $1.2 billion Saudi Arabian Oil Facility (SOF), due to legal and procedural delays.

The Saudi government had agreed to provide $4.2 billion in economic support to Pakistan in June 2021, then formally signed an agreement in November. The economic package included a $3 billion foreign currency deposit in Pakistan’s account and $1.2 billion in oil supplies at the rate of $100 million per month at an interest rate of 3.8%, higher than at the previous rate of 3.2%.

The interest rate on the SOF is almost 1% higher than the 2.8% rate of the International Islamic Trade Finance Corporation, a subsidiary of the Islamic Development Bank, which provides $4.5 billion of three-year commercial financing for oil, gas and fertilizer imports at the rate of $1.5 billion per year.

Informed sources said the Ministry of Finance was required to provide a sovereign guarantee on oil supplies, which took time. In addition, the designated entities of the two countries – Pakistan State Oil, Pak-Arab Refinery Limited (Parco) and National Refinery Limited (NRL) and Saudi Aramco – were required to sign a subordinate commercial purchase agreement which also took effect. time to be verified by the Law Division, they added.

The envoy of the Kingdom, Omar Ayub agrees to accelerate the mechanism as soon as possible

The draft purchase agreement has now been finalized by both parties. PSO, Parco and NRL have also signed the deal while Saudi Aramco has yet to sign. Both parties, official sources said, expect the mechanism to be finalized by the end of the current month to start the first oil flows with the beginning of next month.

In this regard, Saudi Ambassador to Pakistan Nawaf bin Saeed Al-Malkiy met with Minister of Economic Affairs Omar Ayub Khan on Thursday. They “discussed ongoing development projects and new initiatives,” according to an official statement. The minister appreciated Saudi support in priority development areas.

“During the meeting, it was agreed to operationalize the Saudi oil facility at the earliest,” the statement said, adding that the financing agreement worth $1.2 billion for the import of petroleum products was signed on November 29, 2021 between the Saudi Fund for Development (SFD) and the Economic Affairs Division of Pakistan.

After the signing of the purchase agreement, the financing agreement will be operationalized and the importers – Parco and NRL – will materialize the first shipment of crude oil and petroleum products. Pakistan’s Designated Entities (Parco and NRL) signed the final document on January 31 and it was sent to Saudi Aramco for signature. In accordance with the financing agreement, the FSD will extend the financing facility up to $100 million per month for one year for the purchase of petroleum products on a deferred payment basis.

During Prime Minister Imran Khan’s second visit to Saudi Arabia in October last year, the kingdom formally pledged to provide an oil facility worth $100 million a month for a year on payments delayed in Pakistan. Later, a financing agreement for the import of Saudi goods (petroleum products/crude oil) was signed on November 29, 2021 with the SFD.

The financing conditions include the purchase price by the SFD together with a margin of 3.80 pc per year. The funding agreement will initially be for one year, which may be extended for another year by mutual agreement. After the signing of the financing agreement and the presentation of the sovereign financial guarantee of the Pakistani party, a new account manager was opened.

This will be followed simultaneously by the signing of the purchase agreement by Saudi Aramco and Saudi Aramco Product Trading Company.

The FSD provides financial assistance to various development projects.

The Saudi ambassador assured the minister of continued support at all levels to further strengthen economic cooperation between the two countries.

Posted in Dawn, February 4, 2022