Rising crude prices to hit oil industry

Already burdened by debt, rising oil prices are becoming a nightmare for refineries and oil marketing companies.

KARACHI: Rising oil prices in international markets are fast becoming a nightmare for the country’s refineries and oil marketing companies, which have already been burdened by heavy inter-corporate debt.

An official of Pakistan State Oil (PSO) said that the expected rise in oil prices to $105 per barrel would cause difficulties for the giant oil marketing company, whose receivables from various companies have already crossed Rs135 billion.

“In case of a further rise in petroleum prices, PSO would have to purchase expensive petroleum products and sell them to enterprises that are gradually paying their outstanding dues. This will certainly aggravate PSO’s financial woes,” he added.

A PSO spokesperson said that outstanding dues which Pakistan Railways has to pay stood at round Rs750 million, which is not a big amount but its cheques have bounced many a times.

“We have been requesting the Railways to sign a fuel supply agreement for the past two years, which will protect both the institutions, but they were not keen to agree on any payment plan,” she added.

President Petroleum Marketing Business Byco Petroleum Pakistan Limited, Kalim A Siddiqui, said the refining industry faces a critical situation. “I think we all have warned that the circular debt is a big issue. It has been more than two years but problems are only growing.”

“Who will invest in the country just to suffer losses,” Siddiqui said when asked about the new refinery his company has planned to start this month, adding, “it will take six to seven months for the new refinery to come on stream.”

“Our Rs6.5 billion is stuck in circular debt and we are trying to manage. No private company can run with this much money blocked in the system,” he added.

Published in The Express Tribune, January 15^th,  2011.