Saudi Arabia to defer $6BN of oil payments for Pakistan

Saudi Arabia's King Abdullah, an old friend of Pakistan's.

We had reported a few weeks ago that Saudi Arabia and Pakistan had extensive investment discussions when Prime Minister Yusuf Raza Gilani visited Riyadh recently. Part of the agreement that resulted from these discussions involved Saudi Arabia providing $4.82BN of oil on very soft, deferred terms to Pakistan. Apparently we were wrong about the amount. It’s not $4.82BN, it’s $5.9BN. Hence proving, that, bigger is indeed better.

It’s worth pointing out that this special facility has been extended to Pakistan in the past (after the 1998 nuclear tests) and at the end of the deferred period, the entire amount was simply written off. It is not unreasonable to expect that it will be very different this time. This comes at a great time for the Pakistani economy which, like many of the other economies around the world, has been affected by rising oil prices. In particular, the foreign exchange outflows to fund imports were drastically increased. This deferrment will go a very long way in resolving that issue for the next several years. During this time, the government plans to invest heavily in infrastructure for power generation, local oil exploration and refining, to address longer term energy security.

Saudi Arabia and Pakistan have been long-standing economic partners and this latest agreement demonstrates the natural economic synergies between the two countries. While Pakistan’s energy security is of paramount importance to it, so is Saudi Arabia’s food security to the government in Riyadh. Pakistan is going to extend very favourable terms to Saudi Arabian agricultural corporations to bring tens of thousands of acres of land under cultivation in Pakistan. Saudi Arabia’s own geography does not allow this. And since Pakistan is just a hop across the gulf, with the Gwadar port now in operation, transportation costs and logistical issues are at an absolute minimum for Saudi agri-investors. Talk about a win-win.

The Business Recorder has more:

Saudi Arabia defers $5.9bn payment for oil sales to Pakistan

LONDON (updated on: July 12, 2008, 19:30 PST): Saudi Arabia has agreed in principle to defer payment for crude oil sales to Pakistan, expected to be worth about $5.9 billion at current rates, during July-June financial year 2008-09.”There is an agreement in principle to defer oil payments. The modalities are being worked out,” Finance Minister Naveed Qamar said. He did not discuss the time frame for deferred payments but a Petroleum Ministry official in Islamabad told the Financial Times that the agreement involved deferring the payment until at least June next year.

Saudi Arabia sells about 110,000 barrels of crude oil daily to Pakistan or about 40m barrels a year which at 147 dollars a barrel comes to about 5.88bn dollars. Pakistan imports a total of 202,000 b/d or approximately 73.7m barrels a year. Half of that comes from Saudi Arabia.