Pakistan's infrastructure issues and cash flow hamper import of Russian crude
The cash-strapped country became Russia's latest customer snapping up discounted crude that has been banned from European markets due to Russia's war on Ukraine
By Eastern EyeAug 03, 2023
PAKISTAN is unlikely to meet a target for Russian crude to make up two-thirds of its oil imports, despite attractive prices, hampered by a shortage of foreign currency and limitations at its refineries and ports, officials and analysts say.
The cash-strapped country became Russia’s latest customer snapping up discounted crude that has been banned from European markets due to Russia’s war on Ukraine. Its first cargo arrived in June and a second is now under negotiation.
It is targeting 100,000 bpd of imports from Russia, compared with the total 154,000 bpd of crude it imported in 2022, in the hopes that will lower its import bill, address a foreign exchange crisis and keep a lid on record high inflation. However, the benefits are being offset by increased shipping costs and lower quality refined products compared with the fuels produced with crude from Pakistan’s main suppliers, Saudi Arabia and the United Arab Emirates.
Pakistan will have to increase gasoline and gasoil imports to make up for the lower output of these fuels from the Russian crude, leading to more dollar outflows and stress on its crisishit economy, said Shahbaz Ashraf, chief investment officer at Pakistan-based FRIM Ventures.
While Islamabad and Moscow have not disclosed pricing details and the extent of discounts, a shortage of Chinese yuan currency to pay for Russian crude poses another hurdle, as it needs the yuan for trade with China, its top trade partner.
Pakistan paid for its first Russian crude cargo in Chinese yuan. However, Aadil Nakhoda, assistant professor at Karachi’s Institute of Business Administration, said it would be better for the country to use a barter deal with Russia than paying with yuan, which traders say is in short supply. “How will it pay other lenders and how will it finance trade with China if it uses the low yuan reserves to pay for Russian oil?” Nakhoda said.
Adding to the challenges, transportation costs for Russian crude are higher than for Middle Eastern crudes not only because of the longer distance travelled, but because Pakistan’s ports cannot handle the large vessels departing Russia.
Urals crude had to be transferred from a supertanker on to smaller ships, known as a lightering operation, in Oman before heading to Pakistan, government officials said, unlike direct shipments from the Middle East.
Even with that extra cost, it was worth importing Russian oil, said Viktor Katona, lead crude analyst at Kpler, as Saudi Arab Light crude is $10 (£8) to $11 (£9) per barrel more expensive for Pakistani refiners than Urals, while lightering operations add around $2 (£1.56) to $3 (£2.3) per barrel. “Pakistani buyers would still be much better off,” he said.
However, Urals quality is a deterrent, as Pakistan’s refineries cannot get as much gasoline and diesel out of Urals crude as they produce from Saudi and UAE crudes. It will take Pakistan Re[1]finery Ltd (PRL) at least two months to fully process its first cargo of 100,000 metric tons (730,000 barrels) of Urals crude as it needs to be blended with Middle East crude to offset the high output of fuel oil from the Russian oil, Zahid Mir, chief executive of the state-run refiner, told Reuters.
“Our optimum processing solution is to blend Urals with Middle Eastern imported crude while not exceeding 50 per cent Ural in the blend,” Mir said.
The residual fuel produced from Urals crude has to be mixed with diesel and kerosene to meet specifications for local use while the remainder is exported, but the deal was still commercially viable for Pakistan, Mir said. PRL has no plans to upgrade its refinery to process fuel oil into higher quality fuels, he added.
Kpler’s Katona expects Pakistan’s liquidity issues and technical challenges to weigh on its appetite for Russian crude.
“Russian imports into Pakistan will not grow into anything bigger than one cargo per month,” he said. (Reuters)
UK life sciences sector contributed £17.6bn GVA in 2021 and supports 126,000 high-skilled jobs.
Inward life sciences FDI fell by 58 per cent from £1,897m in 2021 to £795m in 2023.
Experts warn NHS underinvestment and NICE pricing rules are deterring innovation and patient access.
Investment gap
Britain is seeking to attract new pharmaceutical investment as part of its plan to strengthen the life sciences sector, Chancellor Rachel Reeves said during meetings in Washington this week. “We do need to make sure that we are an attractive place for pharmaceuticals, and that includes on pricing, but in return for that, we want to see more investment flow to Britain,” Reeves told reporters.
Recent ABPI report, ‘Creating the conditions for investment and growth’, The UK’s pharmaceutical industry is integral to both the country’s health and growth missions, contributing £17.6 billion in direct gross value added (GVA) annually and supporting 126,000 high-skilled jobs across the nation. It also invests more in research and development (R&D) than any other sector. Yet inward life sciences foreign direct investment (FDI) fell by 58per cent, from £1,897 million in 2021 to £795 million in 2023, while pharmaceutical R&D investment in the UK lagged behind global growth trends, costing an estimated £1.3 billion in lost investment in 2023 alone.
Richard Torbett, ABPI Chief Executive, noted “The UK can lead globally in medicines and vaccines, unlocking billions in R&D investment and improving patient access but only if barriers are removed and innovation rewarded.”
The UK invests just 9% of healthcare spending in medicines, compared with 17% in Spain, and only 37% of new medicines are made fully available for their licensed indications, compared to 90% in Germany.
Expert reviews
Shailesh Solanki, executive editor of Pharmacy Business, pointed that “The government’s own review shows the sector is underfunded by about £2 billion per year. To make transformation a reality, this gap must be closed with clear plans for investment in people, premises and technology.”
The National Institute for Health and Care Excellence (NICE) cost-effectiveness threshold £20,000 to £30,000 per Quality-Adjusted Life Year (QALY) — has remained unchanged for over two decades, delaying or deterring new medicine launches. Raising it is viewed as vital to attracting foreign investment, expanding patient access, and maintaining the UK’s global standing in life sciences.
Guy Oliver, General Manager for Bristol Myers Squibb UK and Ireland, noted that " the current VPAG rate is leaving UK patients behind other countries, forcing cuts to NHS partnerships, clinical trials, and workforce despite government growth ambitions".
Reeves’ push for reform, supported by the ABPI’s Competitiveness Framework, underlines Britain’s intent to stay a leading hub for pharmaceutical innovation while ensuring NHS patients will gain faster access to new treatments.
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