The chronic electricity crisis may worsen after the government refused on Monday to give a Rs78 billion lifeline to the Pakistan State Oil (PSO) needed to purchase furnace oil to maintain the current level of power generation.
The PSO management rushed to Islamabad to seek funds from the finance ministry after it could not keep up the pace of fuel supplies due to its liquidity crunch.
The company has been facing a severe liquidity crunch after independent power producers (IPPs) could not clear their bills due to a mounting circular debt which the finance ministry was reluctant to acknowledge this time. The ministry has refused to book circular debt, piling up on account of low bill recovery and line losses. It is clearing circular debt only to the extent of power subsidies.
PSO Managing Director (MD) Amjad Pervez Janjua sought the funds in a meeting with Finance Minister Ishaq Dar, a petroleum ministry official said. According to him, Rs23 billion were sought to clear past liabilities and Rs55 billion to supply roughly 22,000 metric tons of oil per day to power plants in order to maintain the current power supply levels.
Instead of providing cash to open new letters of credit (LoCs) for purchase of fuel, Finance Minister Dar asked the water and power ministry to sit with the PSO and sort out funding issues, they said. This meeting ended inconclusively as no preparatory consultations were held beforehand, they added.
The finance minister assured the PSO management that their concerns would be addressed.
The PSO defaulted on international LoC payments in May, sustaining a negative impact to its reputation, credibility and risk profile.
According to a finance ministry handout, the PSO MD gave a presentation on the fuel supply and the company’s liquidity position. He told the finance minister that there was a considerable increase in IPPs’ furnace oil demand due to the summer season. At the same time, payments made to PSO have not kept up pace with the furnace oil demand.
The PSO MD said IPPs need to rationalise their demand and must work on long term planning to enhance their stocks. The officials said to enhance power generation, IPPs required 22,000 metric tons of furnace oil daily – they currently lift only 16,000 metric tons a day.
The finance ministry differed, however, and worked out the requirement to be 18,000 metric tons. Dar said IPPs’ fuel consumption must be realistic and correspond to their generation, the handout said.
The meeting was also unable to make a decision on allocating more gas for power generation as the petroleum ministry had no idea where to divert gas from, officials said.
Participants were told hydel plants were generating only 5,200MW this summer season, as opposed to the usual level of 6,500MW, due to lesser inflow at dams. This shortfall has prompted IPPs to demand more fuel.
Upon learning this, Dar asked the ministry concerned to coordinate with the Indus River System Authority to ensure hydel generation increased this summer.
Published in The Express Tribune, July 8th, 2014.
COMMENTS (2)
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Hmm, it is good he is not releasing any funds. He should refuse to as well. We need PSO and DISCOS to do their job otherwise just privatise it!
These guys are dumb and do not know how to tackle the issue. I did not hear if PSO defaulted ever? Good performance by PML(N) and now they want IRSA to release water to increase electricity generation so that in the coming season they could open the last avenue of conflict with the province over water distribution......great planning? Current government do not need enemies from outside.