ISLAMABAD: Petroleum Division (PD) has prepared a comprehensive policy guideline to address the challenges faced by smaller Oil Marketing Companies (OMCs) and oil importers in procuring crude oil and petroleum products from international market and sought federal cabinet’s economic coordination committee’s approval.
According to sources of petroleum division, the proposal aims at allowing import on foreign supplier’s account through custom bonded storage facilities, presenting a potential solution to the country’s growing import dependence.
As an import-dependent country, Pakistan currently imports around 9-10 million tons of crude oil and petroleum products each year, primarily from the Arab Gulf Market through long-term arrangements and spot purchases. However, the increasing number of smaller import vessels has strained the country’s supply chain, leading to congestion at ports and demurrage incidents. Additionally, difficulties in opening Letters of Credit (LCs) by international banks and foreign exchange liquidity issues have further impacted procurement planning.
To alleviate these challenges, the proposed policy suggests that foreign suppliers maintain inventories of crude oil and petroleum products in bulk form within their own Customs Public Bonded Warehouses near Pakistani ports. These warehouses would operate without foreign exchange remittances until the products are sold to local purchasers or re-exported to other foreign countries. The foreign suppliers would establish a subsidiary company registered in Pakistan, known as the Consignee, to undertake operational and business activities on behalf of the foreign suppliers and local purchasers.
The Consignee would be required to develop dedicated storage infrastructures around port premises, licensed by the Oil and Gas Regulatory Authority (OGRA) under the Pakistan Oil (Refining, Blending, Transportation, Storage, and Marketing) Rules 2016. They would then sell the goods to Pakistan licensed purchasers, such as refineries or OMCs, against the opening of Letters of Credit (LC) through scheduled banks. LC confirmation by international banks or advance payment would not be necessary, subject to mutual agreement on the currency (US Dollars or Pak Rupees) and in accordance with applicable foreign exchange regulations.
For the sale of bonded goods to local purchasers, the Consignee would file an Electronic Import Form (EIF) along with a Goods Declaration (GD) for Ex-bonding (EB). This process would allow for the transfer of custody to local purchasers for subsequent home consumption upon payment of all applicable duties and taxes by the Consignee on behalf of the purchasers. Furthermore, the foreign suppliers would be permitted to re-export their goods, deposited in bonded warehouses, to foreign buyers or countries with permission from OGRA.
The proposed policy has several benefits for Pakistan, including ensuring the availability of crude oil and petroleum products to local consumers in a shorter timeframe. Local buyers would be able to procure products in both local and foreign currency, eliminating the need for LC confirmation from international banks and resulting in savings on banking charges. Bulk buying by foreign suppliers would enable them to source goods at lower rates and reduce freight charges, benefiting both the suppliers and local customers. Additionally, the government would not experience any revenue loss as foreign exchange repatriation, GD filing, and duty and tax payments would be required for goods cleared for home consumption.
The Petroleum Division believes that implementing this scheme in an automated and hassle-free environment would attract foreign investment in bulk warehousing, generate employment opportunities in the warehousing business, and contribute to the country’s energy security. The summary has been authorized by the Prime Minister, who is also the Minister In-charge for the Petroleum Division, for submission to the Economic Coordination Committee (ECC) of the Cabinet. The Ministry of Commerce will be responsible for notifying the proposed policy provisions in the Import and Export Policy Orders, while the Federal Board of Revenue (FBR), State Bank of Pakistan (SBP), and OGRA will prescribe and monitor the procedures for regulating imports and exports under the proposed scheme.