PSO receivables hit Rs717b
Design: Ibrahim Yahya
Pakistan State Oil (PSO), the largest state-run oil and Liquified Natural Gas (LNG) supplier in the country, has crossed a red line with its receivables now amounting to Rs717 billion, thus posing a threat of discontinuation in the oil supply chain across the country.
Amid the oil crisis, which may further aggravate due to the poor financial health of the state-run enterprise, PSO has been allowed to open only two Letter of Credits (LCs) to import oil during the current month to meet the country’s needs.
Normally, it opens three to four LCs every month to import oil.
The State Bank of Pakistan (SBP), however, had placed restrictions on the opening of LCs and commercial banks were not even ready to open mature LCs for the import of oil.
Oil Companies Advisory Council (OCAC) had already taken up the matter with the Petroleum Division and governor of SBP to direct commercial banks to open LCs for oil imports. The crisis, however, continues to persist and PSO has only been allowed to open limited LCs during the current month amid its worsening financial situation – increasing the chances of an almost immediate disruption in the oil supply chain.
During the previous months, PSO bore losses as it was directed to supply additional fuel to retail pumps at a time of oil crisis.
Now, the country is facing an oil crisis due to the monopoly of petrol pumps which have suspended the sale of petroleum products and are instead storing them.
Oil industry officials explained that the LCs’ issue is another reason for the oil crisis as the six biggest companies were supplying products whereas the smaller companies had no supplies.
PSO’s receivables have reached an alarming level of Rs717 billion as several clients have failed to pay their bills for fuel supplies. The state-owned oil company mainly supplies oil to different clients across the country and also provides LNG for a public gas utility.
Apart from oil, circular debt has also emerged in the supply of imported LNG, which has contributed Rs449.8 billion to national debt.
Of the total receivables, PSO has to receive Rs178 billion from the power sector on account of oil supply for electricity generation.
Power generation companies are the major defaulters that have to pay Rs148 billion to PSO. Hub Power Company Limited (HUBCO) owes Rs25.3 billion whereas Kot Addu Power Company Limited (KAPCO) has to pay Rs5 billion.
PSO also brings LNG cargoes for onward supply to Sui Northern Gas Pipelines Limited (SNGPL), which then distributes the gas among the end-consumers. SNGPL has to pay Rs449.8 billion to PSO on account of LNG supply.
Earlier, the power sector used to be the largest defaulter of PSO. Now, however, SNGPL has become the largest defaulter of PSO due to its failure to pay its LNG bills.
SNGPL failed to receive bills from domestic consumers during the last few winter seasons as the governments had directed the diversion of LNG to domestic consumers to overcome the gas crisis.
During Pakistan Tehreek-i-Insaaf (PTI)’s tenure, parliament had passed a bill to introduce the weighted average cost of gas – which is the average price of imported LNG and locally produced natural gas – to curtail circular debt in the gas sector.
Earlier, there was no legal framework to recover LNG prices from domestic consumers which led to a huge pile-up of receivables..
design: Ibrahim Yahya
The weighted average gas bill, however, was challenged in the Sindh High Court and even Pakistan People’s Party (PPP) had announced to become a party in the case.
Due to the lack of a legal framework, the domestic consumers did not pay their LNG bill leading to SNGPL failing to pay its bills to PSO.
Pakistan International Airlines (PIA) is another major defaulter. PSO supplies jet fuel to the airline to run its operations. PIA has to pay Rs24.5 billion to PSO.
The state-run oil marketing company is also due to receive Rs8.93 billion from the government on account of price differential claims.
On the other hand, PSO has to pay Rs32.2 billion to oil refineries for fuel supply.
It owes Rs20.6 billion to Pak-Arab Refinery Company, Rs2 billion to Pakistan Refinery Limited, Rs1.7 billion to National Refinery Limited, Rs7.4 billion to Attock Refinery Limited and Rs379 million to Enar.
Published in The Express Tribune, February 10th, 2023.
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