A general view of a residential area is seen during a power breakdown in Karachi, Pakistan, January 10, 2021. REUTERS/Akhtar Soomro - RC2K4L9PI1C2

Pakistan’s Recent Power Blackout Linked To Forex Woes

A general view of a residential area is seen during a power breakdown in Karachi, Pakistan, January 10, 2021. REUTERS/Akhtar Soomro - RC2K4L9PI1C2

Pakistan’s recent countrywide electricity blackout is a symptom of its enduring economic crisis as its forex reserves are dwindling and are not in a position to buy oil for the energy sector, writes Adnan Aamir in Nikkei Asia.

A prolonged shortage of dollars is wreaking havoc throughout the economy and a nationwide power outage this week underscored the razor-thin margins for error in Pakistan’s energy sector, he writes.
The government said the blackout, which lasted around 16 hours, was caused by a technical glitch in the transmission system, however, a federal official who spoke on condition of anonymity drew an indirect connection to dwindling fuel supplies, reported Nikkei Asia.

“The government turns off the power plants at night to save fuel,” said the official, who was not authorized to speak to the media, adding, “When they tried to resume them on Monday morning, the system tripped, and it created a crisis-like situation.”

As per distributors and some officials, a shortage of dollars will lead Pakistan toward an oil crisis, writes Aamir.

The Oil Companies Advisory Council — a body representing refineries, marketing, and pipeline companies — on January 13 sent a letter to the Ministry of Finance, a copy of which was seen by Nikkei Asia.

The group highlighted the problems industry players are having opening letters of credit to import petroleum products.

A letter of credit, or LC, is a document issued by the importer’s bank, guaranteeing payment to the exporter once the terms of the contract have been met.

“If LCs are not established on a timely basis, critical imports of petroleum products would be impacted, which may lead to a fuel shortage in the country,” the letter read. It further stated that once the supply chain is compromised, it could take six to eight weeks to normalize it.

The letter revealed further that Pakistan needs to import around 430,000 metric tonnes of gasoline, 200,000 tonnes of high-speed diesel, and 650,000 tonnes of crude oil every month. The total bill comes to about USD 1.3 billion, writes Aamir.

Echoing the council’s warning, the Power Division of Pakistan on Saturday wrote to the governor of the State Bank, saying stocks of petroleum products may dry up as banks refuse to open and confirm LCs for imports.

The Oil and Gas Regulatory Authority (OGRA) has downplayed the concerns over fuel, saying in a news release that Pakistan has enough stocks to meet gasoline demand for 18 days and diesel needs for 37 days.

But the federal official who spoke with Nikkei Asia said oil stocks are at dangerously low levels.

“Oil stocks are replenished on a regular basis through imports, which is not taking place as frequently as required due to the shortage of forex reserves,” he said.

Pakistan’s forex stockpile stood at USD 4.6 billion as of January 13, according to data released by the State Bank. The International Monetary Fund has estimated that Pakistan’s total external debt will be around USD 138 billion by the end of the current fiscal year in June, with about USD 21 billion worth of repayments due this year.

The situation has raised fears that Pakistan could join smaller South Asian neighbor Sri Lanka in default.

Islamabad is scrambling to revive a stalled IMF bailout program originally worth USD 6 billion and expanded with another USD 1 billion last year. (ANI)

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