Averting debt pile-up: PSO demands Rs28b per month for continued oil supply

Bank borrowing limit for the company enhanced from Rs41b to Rs60b.

ISLAMABAD:

As inefficiency of power companies continues to plague the energy sector, Pakistan State Oil (PSO) has asked the government to chalk out a mechanism that can ensure payments of Rs28 billion per month for oil supplies to electricity producers, which will help avoid the biting inter-corporate debt in future, officials say.

Earlier, PSO sought release of Rs20 billion per month by power producers, but now it has raised the amount to Rs28 billion amid fears of fuel shortages and a breakdown in the energy supply chain. “We want monthly payments of Rs28 billion to PSO to ease its financial woes,” Secretary Petroleum Ijaz Chaudhry said.

According to statistics, PSO supplied oil worth Rs241.4 billion to power companies from February to mid-October, but it was paid only Rs135.2 billion. “Less than required payment to PSO is aggravating the circular debt problem,” an official said.

Though power tariff frequently goes up on account of fuel price adjustment, the issue of inter-corporate debt has remained persisted among companies of the energy supply chain because of non-payment of dues.

On November 3, PSO’s receivables from power suppliers and other consumers stood at Rs161.18 billion while its payables to local and international fuel suppliers were Rs137.13 billion.

In the face of a poor response from power companies and the ministries concerned and to address the cash crunch, oil marketing giant PSO borrowed over Rs41 billion from banks for oil import in September. However, its bank borrowing limit has been enhanced to Rs60 billion from Rs41 billion due to its weak financial position.

The company is struggling to ensure uninterrupted oil supplies across the country, especially to power companies. According to PSO authorities, the company is supplying an average of Rs32 billion worth of oil to power companies per month, the electricity producers regularly default on payment obligations.

As a result, PSO too has failed to pay to domestic refineries, bringing down their production levels. Meeting international payments has also become difficult for PSO and a default can lead to disruption of supplies while their resumption will take months, officials said.

Published in The Express Tribune, November 6^th, 2011.