Pakistan has secured a $4.5 billion worth of three-year trade financing facility from a Jeddah-based Islamic Trade Finance Corporation (IFTC) to cover the import cost of crude oil, liquified natural gas (LNG), and petroleum products.
According to the report by Dawn on 25th June, the formal financing framework agreement will be signed next week.
The funds gotten would be divided in such a way that they would be utilized under the Annual Financing Plan of roughly $1.5 billion per year.
Reportedly, this agreement is in addition to a prior $531 million one signed between the Saudi Fund for Development (SFD) and Pakistan’s Ministry of Economic Affairs. The earlier one is to be reportedly used for financing of Mohmand dam, some hydropower projects in Azad Kashmir, and the coal-based power projects.
The national media agency reported that the recent financing facility by IFTC would be used by Pak-Arab Refinery Ltd (PARCO), Pakistan State Oil (PSO), and Pakistan LNG Ltd (PLL) over a period of 3 years (2021-23) for the import of crude oil, refined petroleum proÂducts, and LNG and help replenish Pakistan foreign currency reserves while providing resources to meet the oil import bill.
A similar $4.5 billion package was signed by the two parties in April 2018 to cover oil and LNG imports over a period of three years (2018-2020) at the rate of about 1.4 percent per annum.
However, the annual utilization did not cross $900 million in the first two years while third-year utilization just went past $1bn. Total utilization in three years ending December 2020 amounted to about $3bn.
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Thus, the Pakistani government could not utilize almost one-third of the earlier package for three years that expired on Dec 31, 2020.
The recent facility had formally become effective on July 1, 2018, when it rolled over about a $100m loan. Before the 2018-20 framework agreement, the ITFC had extended about $3.2bn trade financing facility of similar tenure to Pakistan mostly covering crude oil and some petroleum products. That three-year facility had come to an end in 2017.
Before 2018, according to national media reports, the ITFC’s financing was available only to Pak-Arab Refinery which was expanded to the Pakistan State Oil in 2018.
In 2020, Pakistan LNG Ltd was also included in the arrangement for the first time. ITFC had a limited portfolio of its own and normally arranged funds from other private financial institutions.
Reportedly, under the ITFC facility, funds do not come into Pakistan’s account but ease pressure on foreign exchange reserves. These funds would be used for financing letters of credit for oil and LNG imports by PSO, Parco, and PLL.
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Chief Executive Eng Hani Salem Sonbol reportedly said in February 2021 that Pakistan and ITFC had long-standing cooperation since the creation of the ITFC in 2008 and Pakistan was the second largest beneficiary of ITFC financing.