ISLAMABAD: Pakistan is again facing the spectre of oil shortage that may hamper the flow of fuel to armed forces and spark prolonged power outages as outstanding bills of electricity producers for oil supplies are piling up.
Pakistan State Oil (PSO), the state oil marketing giant, has warned the government that oil supplies may be disrupted in the wake of financial crisis being faced by the company due to delay in settling of its dues by the power producers.
In turn, PSO has not been able to pay its local and international oil suppliers, which could lead to delay in further imports and trigger fuel shortage across the country.
“The feared slowdown in supplies could have some repercussions,” a senior official of the Ministry of Petroleum and Natural Resources cautioned.
“The petroleum and finance ministries should spring into action to ensure payment of outstanding bills of the oil marketing company,” he said.
PSO also warned that oil flow to over 70% of power plants that the company was feeding would be in jeopardy and it could result in prolonged power outages in the country.
In the event of a default, banks will be reluctant to open letters of credit (LCs) for oil imports, which had earlier happened in January 2015 when acute petrol shortages hit the consumers hard.
The default on LC payments will cause deterioration in the credit rating of PSO as well as sovereign rating of Pakistan. It will leave an impact on the overall investment climate and increase the risk perception.
“PSO is again facing the similar financial situation that it had to deal with in January 2015. This time around, besides petrol, furnace oil could also be in short supply,” the official said.
PSO has to receive Rs251.8 billion from different clients. Power producers owe Rs222.6 billion whereas dues of Pakistan International Airlines, payments for liquefied natural gas and price differential claims amount to Rs29.2 billion.
“The power sector was not complying with the seven-day payment arrangement. It was to pay Rs15.4 billion under the arrangement but it defaulted,” the official added. PSO’s receivables from the power sector had stood at Rs185 billion in February 2015.
PSO said its borrowing had gone beyond the limit and any further delay in bill clearance by the power producers would force it to default on payments to local and international fuel suppliers.
Published in The Express Tribune, December 24th, 2016.