ISLAMABAD: The petroleum division has come up with a unique solution to address challenges faced by smaller Oil Marketing Companies (OMCs) in importing crude oil into the country.
A proposal put forth by the ministry has suggested that the import of crude oil be allowed through custom bonded storage facilities. These are storage facilities in which imported dutiable merchandise may be stored, manipulated, or undergo manufacturing operations without payment of duties for a set amount of time. The facilities would be used by allowing foreign suppliers to import on their accounts.
How does this work? Let’s look at it from the beginning. Pakistan has a growing import dependence particularly when it comes to its energy needs. 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, in recent times there has been an increase in spot purchases and smaller OMCs have been bringing in many smaller shipments which means there has been an increasing number of smaller import vessels, 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 time frame. 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.