Circular debt woes: PSO resumes oil supply to KAPCO

Release of promised Rs30b by the government within this week still awaited.

KARACHI: Pakistan State Oil (PSO) has resumed furnace oil supply to Kot Addu Power Company (Kapco) despite the fact that the Ministry of Finance has not released the promised Rs30 billion as yet to ease pressure from the swelling inter-corporate debt.

PSO, the largest company in the country in terms of revenue, earlier in the week stated that no supplies would be made to the power producer until payments of outstanding dues were made.

A PSO spokesperson explained on Friday that supplies to Kapco were restored on Thursday on the assurances of the finance and water and power ministries and on expectation that payments will be made by Friday.

Earlier on Monday, the finance ministry pledged that Rs30 billion would be released through Pakistan Electric Power Company (Pepco) within the week, to provide relief to PSO whose receivables have swelled beyond Rs161 billion. The spokesperson lamented that no funds have been released so far to the cash-strapped company. Ministry officials said that the funds are in the pipeline, the spokesperson added.

Last week, the country’s largest oil marketing company suspended supplies to the Water and Power Development Authority (Wapda), Hub Power Company (Hubco) and Kot Addu Power Company (Kapco). However, supplies to Wapda and Hubco were restored after talks with the finance ministry.

Import tenders awarded

PSO has also awarded tenders for oil imports in March, which were earlier suspended due to the cash crunch. The spokesperson said “had we not awarded the tenders, there would have been a shortage in the country, resulting in massive power outages.”

PSO officials have asked the government to come up with a permanent solution to the debt problem that has limited the capacity of the energy sector and also taken a bite out of their earnings due to surging financing costs.

The Oil and Gas Development Company, the largest oil and gas explorer, also failed to announce a dividend for the first time in its history in the second quarter of fiscal 2011 due to the circular debt.

PSO has itself accumulated liabilities amounting to more than Rs126 billion against shipments it received from Pak-Arab Refinery Company, Pakistan Refinery Limited and other local refineries.

Another cheque bounces

Regarding outstanding dues to be paid by Pakistan Railways, the PSO official said that another cheque submitted on February 23 (Wednesday) amounting to Rs101.17 million had bounced.

According to PSO’s official records, Pakistan Railways currently owes more than Rs796.28 million to the oil marketing company. Payment cheques by Pakistan Railways have bounced several times in recent months. The railways has been warned to clear its dues to avoid any disruptions in fuel supply.

Published in The Express Tribune, February 26^th, 2011.