The State Bank of Pakistan (SBP) on Thursday directed all the Pakistani banks and financial institutions (FIs) to restore or revive their banking channels and trade activities with Iran.
A circular issued on Thursday said: “In line with the federal government’s decision to implement the United Nations Security Council (UNSC) Resolution 2231 (2015) dated July 20, 2015, regarding lifting of sanctions against Iran, the SBP has communicated to banks/FIs that previous sanctions on Iran have been removed and normal business activities can be commenced within the scope of the resolution.” It warns: “Banks/FIs have been advised to remain mindful about the activities and persons which continue to remain on the UNSC list, as well as the currencies or financial systems which are subject to certain restrictions.”
The lifting of sanctions and restoration of banking channels between Pakistan and Iran would revive normal trade and business activities between the two neighbors. It is also learnt that Iranian President Rouhani intends to visit Islamabad but the exact date has not yet been decided. Both countries are dissatisfied with the current level of trade volume, the businessmen said to increase higher volume of trade between Iran and Afghanistan. There are many joint big and small projects of Iran and Pakistan, which among them the natural gas pipe line is in priority as Pakistan is facing energy crisis.
The industry sources said that now the country will be able to resume direct oil imports from Iran as normal banking channels have been restored. The country can export basmati rice, sugar and other pakistan agriculture products to Iran which were routine before these sanctions of UNSC.
Earlier, two Pakistani refineries – Pakistan Refinery Limited (PRL) and Bosicor (Byco) – were importing crude oil from Iran until. After 2010 purchases came to a halt as local banks totally refused to open Letters of Credit after the imposition of sanctions on Tehran. In 1980, Pakistan imported crude oil from Iran under a barter arrangement for processing in our refineries and in exchange exported petrol to meet Iranian oil requirements. When restrictions were placed on Tehran, it entered into barter trade with the Indian oil refinery reliance.
Iran has given Pakistani quota to Indian refineries and getting petrol from Indian on barter arrangement. Indian government was getting this crude oil on Iranian currency swap, the industry sources said.
Pakistan oil refinery spokesman said if the Pakistani banks open their Letter of Credit, they we can get this barter arrangement again as the Iran is getting petrol at higher rates from India through large vessels.
The annual production of our refineries is only at 13 million tones, while total capacity of oil production in Pakistan is stands at 22 million tons. The rest is imported from the United Arab Emirates and Saudi Arabia.
Imran Gardezi, spokesman of Byco said they can start purchasing Iranian oil as it is ahead of industry peers in terms of capacity. After the completion of its second unit, Byco’s crude oil refining capacity has gone up to 155,000 barrels per day from 35,000 bpd.
It has beaten Pak Arab Refinery Company (Parco) that can produce 90,000 bpd. Comes next is National Refinery that has a capacity to produce 68,000 bpd, followed by Pakistan Refinery at 48,000 bpd and Attock Refinery at 45,000 bpd.
The refinery was established in Hub area in order to import crude oil from Iran, but after sanctions it struck a long-term deal with other suppliers.
A member of the KCCI said Iran had a surplus of energy but is food deficient, while Pakistan is food secure but energy deficient. “The fact that our own raft of sanctions, mostly issued through the foreign office, has now been lifted has cleared the way for parties on both sides to start re-engaging with one another. And this is precisely the point where the road towards the resumption of normal economic ties comes into view before us.”
He said no further legal obstacles stand in the way of private-sector parties to start engaging with the neighbouring economy, but significant logistical obstacles still remains. Banks need to build counterparty arrangements with Iranian banks so LCs can be processed, the road linkages need to be upgraded significantly to handle the clearing of containerised cargoes, and a clientele needs to be developed by traders on either side of the border.
According to the TDAP’s data, Pakistan’s major exporting goods to Iran in 2014/15 included paper and paper board, orange juice, Basmati rice and other verities, plastic material, surgical items, and kinnow. Major importing goods from Iran to Pakistan included liquefied petroleum gas, gram dry whole, electric transformers, petroleum products, steel scraps, sheep skin and dry fruits.
The bilateral trade volume fell to $431.76 million in 2010/11 from $1.32 billion in 2008/09 despite the fact both the countries have a preferential trade agreement.
“The decision to open banks in Iran or Irani bank in Pakistan would be taken later if the demand from the business communities increased, but initially both countries would have financial agreements with each other banks to transfer money or open Letter of Credit,” the spokesman of the SBP further informed.
