Energy sector: Producers stop oil purchase after ministry closes plants

Govt trying to stave off higher electricity production and subsidy cost.

ISLAMABAD:

Some power producers have refused to take oil supplies from Pakistan State Oil (PSO) following orders from the Ministry of Water and Power to shut down these electricity plants to avoid higher production cost and increasing burden of subsidy, sources say.

PSO, the oil marketing giant that has a dominating share in the domestic market, was providing such a quantity of expensive oil to these power plants that they were able to produce 5,000 megawatts.

“Now, the plants are generating only 500MW and are not lifting the fuel supplied by PSO, causing difficulties for PSO suppliers who insist that the company much receive oil,” said a source in the Ministry of Petroleum and Natural Resources. “Some of the plants have also sent letters to PSO, asking the marketing firm to stop oil deliveries.”

PSO was to receive oil consignments from three ships but it delayed the plan after power plants stopped purchases.



According to officials, power companies are the major defaulters of PSO as their debt has piled up to Rs70 billion since January this year.

PSO had planned to continue providing oil for two more months but the Ministry of Water and Power closed the power plants to stave off subsidy cost. Before the decision, the ministry did not take the oil supplier on board.

Overall, the inter-corporate debt of the energy chain has once again soared to Rs577 billion compared to Rs480 billion that the PML-N government cleared after coming to power in June last year. Receivables of PSO alone have accumulated to Rs220 billion.

The government has been reluctant to run power plants on expensive high-speed diesel that pushes up substantially the cost of power production. Consequently, it is compelled to either dole out subsidy or pass on the higher cost to consumers.

However, on the other hand, hydroelectric power generation had dropped to 3,500MW from 6,500MW in the wake of reduced water releases, said officials.

Since taking the reins of the country, the government has been grappling with the problem of power shortage, which primarily stems from poor management on the part of electricity distribution companies. According to a report submitted to the cabinet, average collection rate of power bills of all distribution companies has dropped 10 percentage points from 90% in 2012-13 to 80% in 2013-14.

Receivables of energy companies have been persistently going up. The figure was Rs384 billion at the end of fiscal year 2012-13, which rose about Rs100 billion to Rs485 billion by the close of 2013-14. Now, the receivables stand at Rs577 billion.

“In an attempt to cut subsidy payments, the government has imposed Rs1.50 per unit equalisation surcharge on the consumers to collect an estimated Rs70 billion in a year rather than taking measures to make the energy sector efficient,” an official remarked.

Published in The Express Tribune, November 23^rd, 2014.

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