Cash crunch may force PSO to stop oil supply to airlines

Oil marketing company’s receivables have mounted to Rs355 billion

ISLAMABAD: The chairman of Pakistan State Oil (PSO) board of management has cautioned the government that oil supply to domestic and international airlines may come to a halt as the company is facing a financial crunch due to payments stuck in the energy chain.

Receivables of PSO swelled to Rs355 billion by January 20, 2020. Financial condition of the oil marketing company appears to have worsened as the board chairman has apprised finance secretary of the situation and difficult state of affairs.

It seems PSO is heading towards a financial crisis which may bring to a halt oil supply to the airlines.

The issue was taken up in a recent meeting of the Economic Coordination Committee (ECC) when the Petroleum Division sought to offset the loss of Rs28 billion incurred on loans by PSO.

The ECC was informed that PSO had so far suffered a net exchange loss of Rs28 billion on bank loans in the wake of rupee depreciation against the US dollar.

PSO was facing a liquidity crunch as its receivables from power producers, Sui Northern Gas Pipelines Limited (SNGPL), Pakistan International Airlines (PIA) and the government of Pakistan had swelled to Rs335.7 billion by December 15, 2019, the meeting was told.

PSO profit drops 17% to Rs3.5b

The huge overdue amount was undermining PSO's ability to make uninterrupted energy supply to different sectors across the country. There was a risk of default by PSO on local and international payments and in that case jet fuel supply to domestic and foreign airlines may be hampered.

The state of affairs had already been conveyed by the PSO board chairman to the finance secretary and delay in reimbursement of the exchange loss on loans may aggravate the situation.

The Petroleum Division told the ECC that the Finance Division had advised oil-importing companies to explore the possibility of making long-term financing arrangements with banks and other financial institutions.

In such financing facilities, extra costs and risks were to be borne by the oil-importing companies whereas the federal government committed to defray such costs and risks.

Following the directives and advice of the Petroleum Division given from time to time, PSO had been utilising FE-25 loans - a deferred payment facility - from domestic and international banks operating in Pakistan since 2013.

In that respect, PSO had to date borne a net exchange loss of Rs28 billion because of rupee depreciation against the dollar.

The Petroleum Division proposed that provision of Rs28 billion on account of exchange loss may be approved in favour of PSO in a bid to improve its liquidity position and ward off any untoward situation.

The ECC gave directives for considering allocation of the requisite amount for PSO in the next financial year. It also directed the finance secretary to explore the possibility of clearing some of the claims in the current fiscal year in consultation with the petroleum secretary.

Responding to The Express Tribune's queries, PSO spokesperson said: "PSO is committed to supporting the economic wellbeing of Pakistan with consistent supply of petroleum products. Circular debt is, however, a serious problem in our mission to serve the nation and to expand and grow in future. We continue to work with the government of Pakistan at every level to resolve this longstanding issue."