ISLAMABAD: Petroleum Minister Musadik Malik has said that despite the increased yield of furnace oil during the refining as well as high operational costs of the import, the Russian fuel would be significantly beneficial for Pakistan, even as a Russian minister ruled out any sort of exclusive discount for Islamabad on the purchase of ‘Urals’ crude from Moscow.

“Oil deliveries to Pakistan have begun. There is no special discount; for Pakistan, it is the same as for other buyers,” Energy Minister Nikolai Shulginov told the Russian state media on Friday on the sidelines of an international economic conference in St. Petersburg, according to a VOA report.

The Russian minister, however, confirmed that it had started exporting oil to Pakistan and had agreed to accept Chinese currency as payment. But the deal did not include any exclusive discounts on the purchase deal, he added, Prime Minister Shehbaz Sharif announced last week that the first “Russian discounted crude oil cargo” had arrived and offloaded at the port in Karachi. Pakistan’s petroleum minister later revealed that Pakistan had paid in yuan for the first government-to-government Russian crude oil import.

Mr Shulginov confirmed this claim. “We agreed that the payment would be made in the currencies of friendly countries,” said the minister when asked if Pakistan was paying Russia in Chinese currency. He also confirmed that the issue of barter supplies was also discussed, “but no decision has been made yet.”

Musadik says benefits of ‘Urals crude’ purchase outweigh drawbacks

The Russian minister said that the two countries had not yet reached an understanding on prices for the export of liquefied natural gas to Pakistan. He noted that “the discussion is about long-term contracts, but so far, we are talking about spot supplies, and spot gas prices are now high.”

‘Benefits outweigh drawbacks’

Meanwhile, Petroleum Minister Musadik Malik claimed that the supply of crude oil from Russia would be streamlined in the next few months, and after the Pakistan Refinery Limited (PRL), Pak-Arab Refinery (Parco) and private refineries would also start receiving the shipments.

The minister made these remarks in a conversation with anchorperson Shahzeb Khanzada on Geo News on Friday night. He claimed that even though the transportation cost and insurance premiums have increased, besides the yield of furnace oil, the Russian ‘Urals’ crude would still be “significantly beneficial” to Pakistan.

“Our refineries are designed to refine the Arabian light crude because of ‘hydro-skimming’ technology,” he said, adding that all the permutations run by experts proved that Pakistan will still get a significant benefit by using this fuel.

He said before ordering the fuel from Russia, Pakistan had acquired samples of its chemical composition and tested them at its labs. The PRL experts confirmed that this fuel could be used after blending with Arabian light crude: 30-35% Russian fuel could be mixed with the Arabian light crude, which meant that this fuel could account for one-third of Pakistan’s fuel needs.

On the other hand, Parco put the blending ratio at 25-30pc, he said, adding that a private refinery, which he refused to name, put the blending percentage of Russian oil with the Arabia light crude could at 80pc.

The minister admitted that the furnace oil production would increase as compared to the Arabian light crude, but even “if it is exported at a loss, Pakistan would still attain a benefit”. The minister refused to quantify the benefits Pakis­tan would achieve as a result of the import of Russian oil, calling these details confidential.

Speaking about the payment made in the Chinese currency, he said the payment made in the Chinese currency was not part of the contract and added that Pakistan would pay in any foreign currency available in its reserves. It did not matter for Pakistan if the payment was made in dollars or in any other currency, he said, adding that RMB was used to pay for the first shipment because of the bank’s preference.

At the beginning of the Russia-Ukraine conflict, the price of Russian crude oil dropped relative to international benchmarks. In April, Urals crude, Russia’s flagship export blend, was $35 per barrel cheaper than the Brent benchmark oil price. But this discount shrunk as Russia found alternate buyers, such as Pakistan. Russian Urals crude oil futures traded around $57 per barrel, supported by strong demand, with shipments to both China and India hitting a record high in May. This could reduce the benefit of buying oil from Russia.

Anwar Iqbal in Washington and Zaki Abbas in Islamabad contributed to this report

Published in Dawn, June 18th, 2023