Unable to lift furnace oil, PSO faces financial quagmire

Govt has imposed ban on use of expensive furnace oil in power plants

ISLAMABAD: State-run Pakistan State Oil (PSO) may have to pay millions of dollars in demurrages because of failure to offload furnace oil worth over $100 million following the government’s ban on the use of this fuel in power plants.

PSO is already facing financial constraints due to circular debt and the payment of demurrages will add to its miseries.

It had already awarded contracts for furnace oil supply worth over $100 million when the government suddenly imposed curbs on furnace oil consumption in power plants, which were major customers of the oil marketing company and were supposed to pay billions of rupees for fuel supply.



PSO had warned the government that it would be difficult for it to manage the situation as it had placed orders and the situation would turn critical if the oil was not lifted.

The Cabinet Committee on Energy had decided to ban the use of furnace oil in power plants calling the fuel expensive. However, market sources believed that the government had taken the decision in haste which would spark problems.

They said the government should have taken the decision in phases to dispose of furnace oil stocks. Now, the hasty decision may lead to the closure of refineries and put massive financial burden on PSO.

A senior government official said the government had directed PSO to line up furnace oil imports till December 2017 in order to meet the demand from power plants. Accordingly, PSO placed orders for seven ships. Cargo from one ship has been offloaded whereas six more are due in coming days and weeks.

“PSO has the capacity to offload cargo from only one ship due to the accumulated stock and it may be forced to pay millions of dollars in demurrages for delay in removing cargo from the remaining ships,” an official said, adding the company was also facing difficulty in finding customers for furnace oil stocks.

He pointed out that PSO would have to pay a penalty if it cancelled the orders.

On directives of the federal government, all expensive furnace oil or diesel-run power plants with a cumulative capacity of 4,250 megawatts have been closed.

The closed furnace oil plants included 950MW Hubco plant, 1,000MW Muzaffargarh plant, 400MW Jamshoro plant and 700MW Kapco plant.



Other plants were Nishat Power, Nishat Chunian Power, Liberty Power, Hubco Narowal, Atlas Power and Kohinoor Energy with cumulative capacity of around 1,200MW.

At present, PSO’s receivables stand at Rs307 billion. Power companies were its biggest defaulters which have to pay Rs276 billion. Of this, power generation companies are supposed to pay Rs155 billion, Hubco Rs81 billion and Kapco Rs35 billion.

On its part, PSO is supposed to pay Rs79 billion to oil suppliers including Rs63 billion to international oil and LNG suppliers.

Published in The Express Tribune, November 15^th, 2017.

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