Payment remains a worry for oil exports to Pakistan
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The delegation of private and state-run refiners would deliberate on the volume of petrol, diesel and aviation fuel that Pakistan seeks to import, their pricing and the cross-border payment mechanism. Sources said that Pakistan's oil ministry has consented to receiving the delegation comprising officials from Reliance Industries, Essar Oil, Hindustan-Mittal Energy (HMEL) and the state-run Indian Oil Corporation, but is yet to convey the final dates.
"As per the talks so far, it has been decided to pass on the freight advantage to Pakistan but the worrisome issue is security of payment considering Pakistan has been defaulting on its payments to Kuwait and Saudi Arabia," said a source. "Though the issue was not raised during the diplomatic talks due to its sensitivity, it would top the agenda during the commercial talks," the source added.
Sovereign guarantee is a major issue as the government-owned Pakistan State Oil had to pay equivalent of 20,000 crore Pakistani rupees to local refineries and global fuel suppliers as of last January. Kuwait and Saudi Arabia were reported to have turned down Pakistan's request to supply oil on long-term credit last January due to high circular debt among state-run energy firms and rising international oil prices.
Letters of Credit (LC) issued by Pakistani banks were not acceptable in India, the source said and the high commissions charged by foreign banks in opening LCs would erode some of the freight advantage. While Pakistan allowed import of diesel from India in 2009, it still bans import of petrol and other petroleum products. None of the Indian refiners have, however, been able to export diesel to Pakistan as it gets the fuel at discounted price from Gulf states such as Kuwait.
Pakistan's existing refining capacity meets only half its total domestic requirement. India, however, exports almost one-fourth of the output from its 185 million-tonne refining capacity, a large proportion of which, are located close to the India-Pakistan border.
There are two options for export: use pipelines to transport the fuel from the upcoming HMEL refinery in Bhatinda up to the border 50 kms away; or ship from Reliance and Essar refineries to Karachi, 200 kms away.
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