A senior official with knowledge of the matter reported that a Russian team arrived in Karachi to finalize a crude oil loan deal with Pakistan State Oil (PSO), moving Pakistan closer to securing the deal.
The official expressed optimism that the hurdles in importing crude oil from Russia would be removed this time. The Energy Ministry did not disclose the mode of payment or discount on crude oil prices. Last month, technical teams from the Operational Services Centre held talks with the PSO team but did not make progress on the constitution of a Special Purpose Vehicle responsible for both importing the crude and payments.
The Russian delegation arrived to finalize the government-to-government agreement, including the mode of payment, which Russia wants in Yuan or Ruble but Pakistan wants to pay in Rupee.
Upon completion of the deal, Pakistan will place an order with Russia for crude oil purchase. The State Bank of Pakistan is asking local banks to open letters of credit for importing Russian oil, but they are hesitant due to G7 countries’ regulations, including the price cap of $60 per barrel or less and payments under SWIFT arrangement.
Refineries in Pakistan have imported crude under long-term agreements from ADNOC and Saudi Aramco, but in this case, the import will not involve refineries but an SPV with representatives from PSO and PSC. The relevant officials hinted that Pakistan might get a discount close to $50 per barrel for Russian crude, $10 per barrel below the cap price imposed by G7 countries on Russian oil.
However, some officials have raised concerns that the 26-day transposition from the Russian port to the Pakistan port would incur a per-barrel shipping cost of $15, and the $10 per barrel refining cost would erode the maximum discount.
Additionally, Pakistan refineries will only be able to extract 10% MS and 50% furnace oil out of Ural crude, and refineries are already facing the ullage of furnace oil. The only consumption of furnace oil in Pakistan depends on running RFO-based power plants. Industrial sources suggested the government conduct a commercial analysis to determine if importing Russian oil would benefit Pakistan’s economy and to what extent.