Identifier
Created
Classification
Origin
08ISLAMABAD3693
2008-11-24 14:24:00
SECRET
Embassy Islamabad
Cable title:  

PAKISTAN PETROLEUM RESERVES DANGEROUSLY LOW

Tags:  ECON ETRD EAID EFIN ENGY EPET ELTN PK 
pdf how-to read a cable
VZCZCXRO8232
PP RUEHLH RUEHPW
DE RUEHIL #3693/01 3291424
ZNY SSSSS ZZH
P 241424Z NOV 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC PRIORITY 0366
INFO RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/SECDEF WASHINGTON DC
RUEHKP/AMCONSUL KARACHI 0680
RUEHLH/AMCONSUL LAHORE 6410
RUEHPW/AMCONSUL PESHAWAR 5264
RUEHNE/AMEMBASSY NEW DELHI 4080
RUEHBUL/AMEMBASSY KABUL 9456
S E C R E T SECTION 01 OF 03 ISLAMABAD 003693 

SENSITIVE
SIPDIS

E.O. 12958: DECL: 11/21/08
TAGS: ECON ETRD EAID EFIN ENGY EPET ELTN PK
SUBJECT: PAKISTAN PETROLEUM RESERVES DANGEROUSLY LOW

Classified by: Ambassador for reasons 1.4 (b) and (d)

S E C R E T SECTION 01 OF 03 ISLAMABAD 003693

SENSITIVE
SIPDIS

E.O. 12958: DECL: 11/21/08
TAGS: ECON ETRD EAID EFIN ENGY EPET ELTN PK
SUBJECT: PAKISTAN PETROLEUM RESERVES DANGEROUSLY LOW

Classified by: Ambassador for reasons 1.4 (b) and (d)


1. (S) Summary. Pakistan may be facing a crude oil shortage in the
near term but the extent of this shortfall cannot be confirmed.
Based on numerous conversations with government officials and
businesses operating in Pakistan, Post has compiled information
regarding a circular debt problem with domestic energy companies and
refineries emanating from the Government of Pakistan's (GOP) reduced
foreign reserves. While a best case scenario would be only a minor
lag in refinery production, another worst case scenario forecasts a
severe shortfall in December which may impact Pakistan's overall
industrial output, domestic utilization and resupply efforts to ISAF
forces in Afghanistan. Post will continue to monitor the situation
carefully and take any precautionary efforts possible to ensure
Embassy functionality. End Summary.

--- -------------- -------------- -------------- -------------- -------------- -------------- STRATEGIC
RESERVES LOW FOR CRUDE OIL- BUT UNCLEAR HOW LOW
-------------- -------------- -------------- -------------- --------------


2. (S) Post has contacted numerous officials in both the government
and private sector to piece together the following information
regarding alleged shortfalls in Pakistan's overall strategic oil
reserves. Due to a very uncharacteristic "closed mouth policy"
Pakistani officials are reluctant to discuss the specifics of the
fuel shortfall and Post has not been able to verify the overall
severity of the problem but will continue to monitor the situation
over the coming days. In a best case scenario, Pakistan will receive
sufficient supplies of crude oil during the week of November 24 to
allow domestic refineries to meet demand with only a minor lag in
their production flows. In a worst case scenario, some government
officials who monitor the country's reserve levels think that
Pakistan could be facing a severe shortfall of crude oil during the
first two weeks of December which could result in rationing and

serious petroleum shortages.


3. (S) The Oil Companies Advisory Committee (OCAC),which represents
all of Pakistan's oil companies, requires government approval for oil
imports. In the past few months, the government has restricted crude
and refined product imports in an attempt to preserve its foreign
exchange reserves which stood at USD 3.337 billion on November 18.
Post was able to obtain a copy of the OCAC "daily stock position" for
November 20 which provides that as of that date, Pakistan's
refineries had a combined stock of 8 days of petroleum, 11 days of
furnace oil, 16 days of jet fuel and 19 days each of high speed
diesel and light speed diesel. Post has not been able to obtain
another copy of this highly restricted document since November 20 and
is unable to verify how much the combined refinery stocks have
increased or depleted since then.


4. (S) Ministry of Petroleum and Natural Resources Deputy Director
Jabar (protect source) confirmed to EconOff on November 19 that due
to Pakistan's deteriorating credit rating, which was reduced to CCC
by S&P on November 14, the government is facing difficulties buying
crude oil. According to Jabar, Pakistan is facing severe problems
clearing letters of credit, and the crude reserves are "significantly
less than" the 10-day reserve requirement. The GOP reduced the
strategic reserve requirement from 21 to 10 days in October in order
to boost foreign exchange reserves (reftel).


5. (S) Ministry of Petroleum and Natural Resources Acting Secretary

G. A. Sabri confirmed to EconOff on November 24 that Pakistan is
experiencing difficulties with letters of credit. He said that the
problem was taking up much of their time and attention as well as
costing money, but he denied that the problem had resulted in a
shortfall. Sabri also confirmed that a vessel carrying crude oil had
been turned around from the Port of Karachi due to "administrative
reasons" but would not provide any further details on this specific
issue. He requested USG intervention to improve Pakistan's credit
rating, believing that this would solve the LOC issue.

6 (S) Salman Farruqui, Deputy Planning Commission, claimed that there
is no fuel shortage but would not provide specific comments in a
meeting with EconCounselor. Farruqui did provide that due to the
pending agreement with the International Monetary Fund, the
government was unable to make timely fuel purchases but quickly noted
that payments were now being made to companies. (Note: Pakistan will
receive USD 3 billion from the IMF on or about November 28 if the IMF
executive board approves the agreement on November 24. End Note.)


7. (C) Kaleem Ahmed Sadique, Managing Director of Pakistan State Oil

ISLAMABAD 00003693 002 OF 003


(PSO),the largest oil company in the country told EconOff on
November 24 that circular debt is preventing PSO from making its
payments to refineries. Sadique said that refineries are running at
45 percent capacity because of normal to low crude reserves.
According to him, independent power producers, the Water and Power
Development Authority (WAPDA) and Pakistan International Airlines
(PIA) together owe PSO PKR 76 billion (USD 950 million).


8. (C) EconCounselor spoke with Haroun Khawaja, CEO of AES Pakistan
who confirmed that they are concerned about their ability to continue
purchasing from Pakistan State Oil due to the drop in strategic
reserves. Khawaja stated that no Letter of Credit for private
Pakistani banks are being accepted due to the overall credit rating
and all orders for crude oil on the international market must be paid
for in advance. In a separate conversation with EconOff, AES's Chief
Financial Officer Nazir Chanda said that AES was receiving PKR 100 to
200 million per week (USD (1.25 million to 2.5 million),which was
not enough to cover AES fuel purchases for their 2 plants. CEO
Haroon Khawaja later told EconCounselor that the AES plants had 3
hours of furnace oil supply on hand and was arranging several
deliveries from PSO per day.

--------------
IMPACT ON EMBASSY OPERATIONS
--------------


9. (C) The U.S. Mission uses diesel fuel for its emergency generators
and many of its official vehicles, and gasoline for its other
official vehicles. Embassy Islamabad and its constituent posts in
Karachi, Peshawar, and Lahore have been topping off their fuel tanks
in anticipation of tightened fuel supplies. Embassy Islamabad has
fuel reserves on the Chancery compound that should last for five
days' worth of routine consumption. That reserve could last less
than five days if Islamabad were to have particularly severe periods
of electrical load shedding, which would significantly increase the
use of the Embassy's backup generators for offices and residences.


10. (SBU) The Embassy has begun working to arrange for fabrication of
supplementary fuel tanks for its off-compound residences. Those
supplementary tanks will significantly increase the reserves at each
residence, increase the number of hours the generators can run
without refueling, and extend the time between fuel deliveries.

-------------- --------------
IMPACT ON RESUPPLY FOR TROOPS IN AFGHANISTAN
-------------- --------------


11. (C) Forty percent of the fuel for ISAF forces in Afghanistan
comes from Pakistan and is supplied through private contracts. On
average 180,000 gallons of fuel is delivered from Pakistan on a daily
basis via 18 fuel tankers crossing the Torkam border. The Embassy
representative for the Defense Energy Support Center Middle East has
checked with their two suppliers to verify the level of individual
stocks in order to determine what impact these potentially low levels
will have on ISAF refueling in Afghanistan. Each supplier reports
that the refineries quotas for November and December will be
fulfilled; however given the lack of public awareness on this issue
it is unclear to what extent the refineries are willing to arouse
concern among their clients.

--------------
IMPACT ON DOMESTIC ECONOMY
--------------


12. (SBU) Approximately 95 percent of the cars in Pakistan use
compressed natural gas, however low crude reserve levels will impact
the transit of goods, industrial manufacturing as well as the fuel
used for generators across the country. Ahmed Shiekh Tarvir,
President of the Federated Chambers of Commerce and Industry
confirmed that industry is seeing a depletion in petroleum stocks
which would impact Pakistan's overall industrial production.


13. (SBU) According to media reports, airlines including Pakistani
International Airways (PIA) are also facing jet fuel shortages due to
reduced production by oil refineries. According to one media
report, Shell issued a warning letter to the Civil Aviation Authority
advising them to make alternative arrangements for jet fuel due to
potential depletion of Shell's stocks. The former CEO of PIA, Tariq
Kirmani relayed to EconOff that Shell is reportedly stopping their
supply of jet fuel to PIA due to the vast outstanding debt which is
owed to Shell. PIA has extra flights on its upcoming schedule due to

ISLAMABAD 00003693 003 OF 003


an increase in travelers going on the Haj in early December.

--------------
COMMENT
--------------


14. (S) The severity of Pakistan's fuel shortfall is simply unclear.
Post has received information from a variety of sources and pieced
together information which leads the Embassy to think that unless
payment is soon made to the independent power producers the overall
energy production in Pakistan will be reduced and thus the continuing
blackouts will be more severe. Whether the USD 3 billion IMF money
can be used for payment to the energy companies or will be parked in
the State Bank of Pakistan to shore foreign reserves and the
country's overall credit rating remains to be seen. Post will
continue to monitor the situation and report further developments
septel.

PATTERSON