Saudi Arabia defers to renew pact to supply oil to Pakistan on deferred payments

New Delhi: World’s biggest oil producer and exporter Saudi Arabia is yet to renew an agreement with Pakistan that allows oil supplies on deferred payments after that pact expired two months back.

An agreement between Pakistan and Saudi Arabia for provision of $3.2 billion worth of oil on deferred payments per annum has expired two months ago and decision about its renewal remains pending with Riyadh, according to leading Pak daily The Express Tribune.
The $3.2 billion Saudi oil facility was part of the $6.2-billion Saudi Arabian package announced in November 2018 to ease Pakistan’s external sector woes.

“Pakistan has already prematurely returned $1 billion Saudi loan - four months ahead of its repayment period. Pakistan could also return $2 billion remaining Saudi cash loan, subject to availability of similar facility from China.

The agreement over $3 billion cash support and $3.2 billion oil facility per annum had the provision of renewal for two more years…Saudi Arabia has not provided the oil on deferred payments since May this year,” according to The Express Tribune.

The budget estimates suggested that the Pakistan government was hoping to receive minimum $1 billion worth of oil in fiscal year 2020-21, which started from July.

A Pak oil ministry spokesman said that the response from Saudi Arabian government was awaited over Pakistan’s request to further extend the facility, in line with the provision of the agreement.

In May last year, Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh had announced through his twitter handle that “from July 1, 2019 KSA is activating the deferred payment for petroleum products facility of $275 million per month amounting to $3.2 billion per year for three years”.

“Saudi Arabia had rolled over its $3 billion loan from between November 2019 to January 2020, according to the International Monetary Fund (IMF) report. The IMF has termed the rollovers of Saudi Arabian, United Arab Emirates and Chinese assistance critical for Pakistan’s debt sustainability. Pakistan’s repayment of $1 billion Saudi Arabian loan after borrowing from China and expiry of the oil facility underscores challenging relations between two Islamic nations,” according to The Express Tribune.

The United Arab Emirates (UAE) had also announced a $6.2 billion package for Pakistan in December 2018, including $3.2 billion oil facility. But later on, the UAE reduced its financial assistance to $2 billion and also shelved the plan to give $3.2 billion oil facility on deferred payments.

Under the Saudi agreement, the Pak-Arab Refinery Company (Parco) and the National Refinery Limited (NRL) were required to procure crude oil from Saudi Aramco Product Trading Company. Similarly, Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL) were supposed to procure petroleum products and LNG from the Saudi company, respectively. The two countries inked a financing agreement for the import of petroleum products, crude oil and LNG on February 17, 2019 during the Saudi crown prince’s Islamabad visit, according to the Express Tribune report.