Pakistan-Russia oil deal hits roadblock

Pakistan and Russia had agreed to form a SPV to specifically manage the import of oil from Moscow to Islamabad.

Islamabad: The all-important oil deal between Pakistan and Russia has hit a roadblock, as the two nations are unlikely to finalise a long-term supply deal.

Pakistan and Russia had agreed to form a Special Purpose Vehicle (SPV) to specifically manage the import of oil from Moscow to Islamabad.

However, due to the delay in initiating the process by Islamabad, Moscow is now reluctant to enter into a long-term agreement, especially with concessions on oil supply.

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A government source with knowledge of the deal said that both Islamabad and Moscow seem to be clinging to their positions, meaning that inking a long-term agreement may not be possible anymore.

The expected concern on part of Russia is the discounts it offered to Pakistan.

Russia quotes former India oil prices on the Platts index, which means Russian oil prices will vary with fluctuation on Platts and no permanent discounts would be possible going forward for Pakistan.

On part of Pakistan, the government is stuck between two formulas for the oil deal, according to sources.

The first option is to set up an SPV with the mandate of oil imports from Russia, signposting state’s involvement in oil purchases.

The second option to allow the oil industry to do commercial deals with Russian firms and will be responsible for profit and loss.

In a recent test case, Pakistan Refinery Limited (PRL) imported about 1,00,000 tons of crude oil from Russia. 50,000 tons has already been refined while the remaining is yet to be processed. The deal is considered to be a test case to understand the economics of Russian oil.

Crude oil purchases from the Middle East produces at least 45 percent of High-Speed Diesel (HSD) and 25 percent of furnace oil whereas Russian crude oil is expected to produce 32 percent of HSD and 50 percent of furnace oil.

However, the demand of Russian crude oil has gone down considerably in Pakistan because power plants have shifted to Liquefied Natural Gas (LNG).

Experts say, Pakistan has no market for Russian oil.

“Pakistan’s refineries can use Russian oil by blending it with Arabian crude. Otherwise, there is no market of Russian oil in Pakistan due to higher volumes of furnace oil produced by that crude,” said business market expert Zahar Bhutta.

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