PSO is facing pressure financing its operations due to the non-payment of its dues. It received only Rs10b last week when it required Rs15b to avoid a default on international payments. PHOTO: FILE
ISLAMABAD:
Cash-strapped oil marketing giant Pakistan State Oil (PSO) has defaulted on international fuel supply payments, and suppliers have started imposing fines over the late payment of their dues, The Express Tribune has learnt.
“PSO has technically defaulted to fuel suppliers and the Kuwait Petroleum Corporation (KPC) has imposed a fine of $10,000 on the entity last week,” sources told The Express Tribune; adding that the State Bank of Pakistan had raised questions on the payment made on account of the fine to KPC. Officials also said that other international fuel suppliers were now charging late payment surcharges from PSO.
PSO is facing pressure financing its operations due to the non-payment of its dues. It received only Rs10 billion on Thursday last week when it required Rs15 billion to avoid a default on international payments on maturing Letters of Credit (L/Cs).
“PSO has received another Rs13.9 billion on Tuesday,” sources added. “An amount of Rs 10 billion is still required in order to retire L/Cs opened for the month of February,” sources said.
They said that PSO requires Rs50 billion to retire all L/Cs for the month of February, and has to pay nearly Rs120 billion to clear back L/Cs for the import of all petroleum products in the month of March. Sources added that the prime minister has approved the release of Rs40 billion to pay to oil and gas companies.
Sources revealed that banks are unwilling to provide loans to PSO because of its poor financial health. CitiBank and Standard Chartered have already refused to open L/Cs for the import of petroleum products since October 2012 due to the poor financial position PSO finds itself in. Sources also said that PSO has exhausted its limit of banks loans, and banks are therefore not ready to give more money for the import of oil.
“Had banks still been willing to extend loans to PSO, no payment would have been delayed to international fuel suppliers,” sources added.
PSO has been sending SOS messages to the Government of Pakistan, the power sector, Pakistan International Airlines (PIA) and Pakistan Railways for the past few weeks; however, no substantial payment has been forthcoming that may help it avoid further defaults.
As of February 26, PSO is to receive Rs50.8 billion from the Water and Power Development Authority, Rs55.8 billion from the Hub Power Company, Rs10.4 billion from the Kot Addu Power Company, Rs1.8 billion from PIA, Rs1.23 billion from Pakistan Railways, Rs1.23 billion from independent power producers, and Rs9.08 billion from the Karachi Electric Supply Company.
On the other hand, PSO is to pay Rs83.6 billion to KPC and other international fuel suppliers in order to retire L/Cs, and another Rs35.2 billion to local refineries.
Published in The Express Tribune, March 2nd, 2013.
Like Business on Facebook to stay informed and join in the conversation.
COMMENTS (4)
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ
well in pakistan balance of payment crisis has begun starting from pakistan govt owned PSO then others will follow, if pakistan can't pay for oil and defaulting in international obligation that how come they (pak govt) felt it wise to go for 7 billion $ IP pipeline. 1st How pakistan will generate missing 1.5 billion $ as committed by pak govt to iran?? 2nd how pakistan will repay iran its money for lying pakistan portion of pipeline?? 3rd how pakistan will pay for gas that it intends to purchase?? 4th how it will overcome US sanction?? because those out of sense people who says US cant do this cant that to pakistan etc etc they must know US can inflict much damage to pakistan that is the groung reality. 5th in this 7 billion $ IP pipeline i think almost all or nearly less than 7 billion $ funding is given by iran so how pakistan is going to repay that?? 6th how pakistan will arrange fund for protection,repair,maintenance of its side of pipeline??
does pakistan govt ever thought of all these problems or just signed deal and issued a statement like long live iran pakistan friendship which has no place in business.Many unanswered question remains.pakistan reallly going to face tough day ahead
This had to happen.
Bad financial planning in last 5 years has destroyed the economy. Now FBR is destroying the export/manufacturing sector through series of SROs that have been issued in last two weeks. So sad that there is no one to stop this doom
Despite its poor cash position PSO decided to issue a dividend to its share holders. Surely the management should be taken to task for this?
This was a train wreck that was in the making for a very long time. This is why IMF wanted the circular debt issues to be resolved.
Step 1 : Banks reduce credit limit/ fail to increase credit limit once exhausted (has already happened)
Step 2: Banks stop issuing fresh L/Cs (already happened)
Step 3: PSO deafults in its international obligations (already happened)
Step 4: Suppliers impose penalties (already hapened)
Yet to happen and can be prevented if government urgently undertakes strong but painful reform measures. The pain that the government is avoiding will be completely dwarfed by the pain that will come its way in absence of reforms as the following things would happen. The can has been kicked down the road as much as it could have. It's cruch time now.
Step 5 : Suppliers curtail supply
Step 6: Power generation where around 50% relies on oil crashes beyond even its current levels leading to huge layoffs in industries such as textile and fertiliser industry
Step 7: Paucity of forex makes it difficult to import enough fertiliser to substitute the reduction in domestic production impacting foodgrain production leading to hyperinflation.