Circular debt takes centre stage

ECC disallows 2nd subsidy to PSO, sets up committee to settle debt of Rs1.4tr

ISLAMABAD:

The government, on Wednesday, did not approve a Rs17 billion subsidy sought by the Petroleum Division to make payments for the import of diesel from Kuwait, as it set up a committee to prepare a plan for the settlement of a Rs1.4 trillion gas sector circular debt.

The Petroleum Division had asked for the funds to cover the shortfall that surfaced due to huge exchange rate losses sustained by the Pakistan State Oil (PSO) against imports of oil from Kuwait. The Economic Coordination Committee (ECC) of the Cabinet, however, referred the matter to a committee that was established on Wednesday to address the liquidity crisis faced by the oil sector companies.

According to the Finance Ministry, the ECC deferred a summary submitted by the Petroleum Division for foreign exchange coverage to PSO and directed it to resubmit the summary after reviewing the numbers.

The ECC was informed that the Petroleum Division, in consultation with PSO, was trying to manage the remittances to Kuwait in order to avoid any international default by depositing required funds on the remittance dates but the situation was too critical keeping in view its liquidity problems.

Pakistan is utilising a credit facility extended by Kuwait Petroleum Corporation (KPC) against the supply of diesel oil since 2000. PSO deposits the rupee equivalent with NBP after 30 days from the bill of lading date of each shipment. After 90 days from the bill of lading date, NBP transfers the cargo cost to KPC.

However, the exchange rate losses were constantly increasing due to the massive fluctuations seen in the value of the rupee within days, causing a gap between the money deposited by the PSO in NBP and the value at which the foreign exchange is bought to make the payments.

Pakistan has recently requested Kuwait to extend the credit facility further by one year.

The NBP account has witnessed actual exchange losses of about Rs 17 billion up to the last remittance made on December 2, 2022, owing to the prevalent upheaval in the rupee-dollar parity during this period, according to the Petroleum Division.

The fresh gap surfaced despite the government approving a Rs30 billion subsidy in September this year for the same purpose.

However, the Finance Ministry has opposed the fresh subsidy, saying that it has already released an amount of Rs30 billion under FE-25 loans during September 2022. In addition to the above, a cash injection of Rs 50 billion has also been provided to PSO through market financing under the government guarantee.

The ECC was informed that in case Kuwait does not extend the credit facility any further, the last remittances will be short of the required funds.

In April 2020, the NBP account also witnessed a huge shortfall on account of exchange losses and then the ECC approved a Rs11.7 billion subsidy for the transfer of funds in the NBP account. Ultimately helping avoid any international default.

PSO has been defaulting on rupee deposits in the NBP account owing to its liquidity issues since June 2022, as its receivables have reached Rs612 billion and it urgently requires adequate funds so that its liabilities are met promptly.

Finance Minister Ishaq Dar, on Wednesday, constituted a new committee on the circular debt settlement plan for the gas sector companies. According to a notification issued by the ministry of finance, Ashfaq Yousaf Tola will be the convener of the committee.

As of the end of June, the gas sector circular debt amounted to over Rs1.4 trillion. While the ministry of finance had made a plan for its settlement, it was never implemented. The new committee will assess whether the plan was workable.

Among the committee members are the secretary or additional secretary of the petroleum division, secretary or additional secretary (Power Division), Additional Secretary CF Abdul Rehman Warriach, commissioner of the Securities & Exchange Commission of Pakistan and chief financial officers of the Pakistan Development Fund, Oil and Gas Development Limited, Government Holding Pvt Limited, PSO, Pakistan Petroleum Limited, Sui Northern Gas Pipeline Limited, Sui Southern Gas Pipeline Limited and the Central Power Purchase Authority (CPPA-G).

The committee will undertake a detailed mapping of the gas sector circular debt stock as of June 30, 2022, segregating the principal amount of debt, late payment surcharges, penalties and liquidated damages among the petroleum sector companies. It will also work out a comprehensive circular debt settlement plan through cash, non-cash releases, and adjustments, and will identify legal and procedural requirements to implement the circular debt settlement plan.

The ECC also approved the transfer of 30% working interest of M/s MoL to M/s MPCL in Margala Block. It approved a Rs822.8 million grant enabling the Gwadar Port Authority to disburse an amount of Rs250,000 per head to 3,291 fishermen registered with the Balochistan Fisheries Department for the purchase of boat engines.

The coordination committee also approved a Technical Supplementary Grant of Rs200 million for the Ghurki Trust Teaching Hospital in Lahore.

Published in The Express Tribune, December 22^nd, 2022.

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