Rupee fall costs PSO Rs63b

Devaluation of currency, declining sales push oil firm towards liquidity crunch

Zafar Bhutta August 03, 2022
File Photo (AFP)


The free fall of Pakistani rupee against the US dollar has put an additional burden of Rs63 billion on the state-run oil marketing company, Pakistan State Oil (PSO), that is facing a liquidity crunch and is fearing default on international payments. The Economic Coordination Committee (ECC) has recently approved the release of funds amounting to Rs30 billion for PSO as part of a bailout.

However, the situation is going to deteriorate further as PSO has to pay billions of rupees to fuel suppliers. In addition to the devaluation of the rupee, there has been a substantial decline in the sale of petrol and diesel. This has resulted in a revenue loss of Rs69 billion for the company, dealing a blow to its financial health.

The Petroleum Division informed the ECC in a recent meeting that there had been a decline in PSO’s sales of high-speed diesel (HSD) and motor spirit (MS) by 28% and 32% respectively. This has reduced the revenue by Rs69 billion, while devaluation of the rupee against the US dollar (17.8% in July 2022) has resulted in an increase in the cost of procurement of these products by Rs63 billion. Receivables from the government against this exchange loss in respect of FE 25 arrangement stood at Rs54.6 billion.

The Petroleum Division said that PSO’s receivables had risen to Rs608 billion as of July 28, 2022. A major contributing factor to this was liquefied natural gas (LNG) supply, which has added a cash shortfall of Rs213 billion since July 1, 2021. This has resulted in the total LNG receivables reaching Rs339 billion. Sui Northern Gas Pipelines Limited (SNGPL), in turn, was constrained by delayed payments by Central Power Purchasing AgencyGuarantee (CPPA-G) and its receivables have increased from Rs43 billion to Rs113 billion on January 1, 2022.

Direct receivables of PSO from CPPA-G stand at Rs182 billion, out of which Rs16 billion has accumulated since July 16, 2022. The Petroleum Division pointed out that delay in payments to PSO by different entities has sapped the liquidity of the company. As a consequence, PSO has not been able to deposit Rs80.7 billion in the government’s account for onward payment to Kuwait Petroleum Corporation (KPC).

Furthermore, PSO has not been able to deposit Rs16 billion in the government account under the International Islamic Trade Finance Corporation (ITFC) facility. These payments have been deferred by PSO so that it does not default on its international contractual obligations. Despite the liquidity challenges, PSO met its contractual international payments in July 2022. However, from the first of August, this would not be possible.

This could then potentially result in the disruption of national oil and gas supply chain. PSO has to make an international payment of Rs267 billion in the first fortnight of August. The forecast collection by PSO during the first fortnight of August is Rs157 billion, resulting in a net deficit of Rs110 billion. In order to ensure that PSO does not default on international payments, the Petroleum Division proposed the following points. PSO’s receivables from the government against exchange loss of Rs54.6 billion may be released immediately.

For the remaining amount of Rs45.4 billion, directive may be issued to the National Bank of Pakistan and other banks to extend the credit limit of PSO on an emergency basis. The Power Division may be directed to make immediate payment of the current outstanding amount of Rs12.80 billion against furnace oil and at least Rs20 billion against re-gasified LNG supplies by August 2, 2022.

The Finance Division stated that despite financial constraints, it had agreed to provide Rs30 billion as a supplementary grant, in view of the urgency of the matter. The ECC also noted with concern the exchange rate losses on FE loans and directed the Petroleum Division to review the mechanism. The ECC considered a summary submitted by the Petroleum Division titled “SOS call for funds for Pakistan State Oil Company Limited (PSOCL) to meet international contractual payments during August 1-14, 2022” and approved Rs30 billion as a supplementary grant.

It also approved the stipulation that Rs20 billion would be provided by the CPPA-G/ Power Division to PSO on August 1, 2022 and Rs12.8 billion would be provided by August 4, 2022. The Finance Division and FBR would submit a proposal to raise Rs30 billion in additional taxes within a week’s time.


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