Pakistan State Oil: Receivables rise to Rs151b

Company fears default on payments to international oil suppliers.

ISLAMABAD: Pakistan State Oil (PSO) may default on international oil payments in a couple of days as its receivables have risen to Rs151 billion due to the government’s inability to resolve the inter-corporate debt issue.

The PSO management has asked the federal government to clear Rs46 billion dues before February 10 which will help the company avoid default on letters of credit issued to Kuwait Petroleum Corporation and other fuel suppliers, said an official of the PSO.

According to a communique sent by the PSO to the finance ministry, the Water and Power Development Authority (Wapda) is withholding Rs46.8 billion payments on account of oil bills that should be cleared during the next two days. Contrary to that, Wapda paid only Rs125 million on Monday.

When the finance ministry was approached to comment on the development, it replied: “The federal government will definitely do something to avert the situation.” However, its official did not say when and how much money will be released.

The PSO, the largest supplier of furnace oil to the power sector, has Rs150.9 billion outstanding till February 7 which has to be paid by private and public sector power producing companies. In return, the PSO has to pay Rs134.9 billion to oil refineries in the country and to foreign suppliers. It has to pay Rs88.1 billion to local oil refineries and Rs46.8 billion to foreign suppliers.

If the PSO is not paid the dues, furnace oil supplies to power producers may come to a halt and power generation will come down. The government has so far been unable to resolve the circular debt issue on a permanent basis. The circular debt resolution is one of the three bottlenecks blocking the restoration of the $11.3 billion International Monetary Fund bailout programme. The World Bank and the Asian Development Bank have also linked their budgetary support loans with the circular debt issue. The government has taken temporary measures to settle the issue that include borrowing billions of rupees from commercial banks through Term Finance Certificates (TFCs). It has formed a power holding company and parked Rs301 billion of circular debt. According to the finance ministry, this year alone the government will pay Rs40 billion interest on this amount. Besides, the authorities are planning to park another Rs124 billion in this company, taking the total amount to Rs425 billion ($5 billion).

The PSO’s letter to the finance ministry shows that Hub Power Company (Hubco) owes Rs64.2 billion to the PSO, Kot Addu Power Company (Kapco) Rs24.8 billion and Karachi Electricity Supply Company Rs1.9 billion.

On the other hand, the PSO owes Rs32 billion to Pak-Arab Refinery, Rs10.8 billion to Pakistan Refinery Limited, Rs9.2 billion to National Refinery Limited, Rs32 billion to Attock Refinery Limited and Rs4.6 billion to Bosicor.

The water and power ministry has some concern over furnace oil supplies to power generation companies. According to an official correspondence, the ministry has raised the issue of contaminated furnace oil supply to one of the power generation companies. It has also raised the issue of disruption in furnace oil supply due to the circular debt.

The ministry has sought the permission of the Economic Coordination Committee of the cabinet for allowing the generation companies to directly import furnace oil to ensure uninterrupted supply.

Published in The Express Tribune, February 8^th,  2011.