If PSO does not get Rs50b, the country will shut down again

The govt’s failure to resolve the crisis means the same cycle is repeating itself.

ISLAMABAD: In a depressingly familiar scene, Pakistan State Oil – the largest oil marketing company in the country – has warned that unless the government arranges for Rs50 billion in payments to its fuel suppliers, PSO will not be able to supply oil to power companies, which will effectively force the entire country to shut down, as it did for two days in October of last year.

The state-owned company’s payables to oil suppliers – including several foreign suppliers – have now touched Rs202 billion, forcing the company to cut back by 30% its supplies of oil to power companies, which in turn collectively owe PSO Rs189 billion.

PSO cannot pay its suppliers because power companies – which are its biggest customers – are not paying the company. The power companies are not paying PSO because government entities are not paying their bills and the government is also not paying up the amount of subsidies it has promised the power companies.

“We need at least Rs50 billion to pay letters of credits (LCs) due on January 15,” said one PSO official, adding that the payment had already been deferred several times due to the company’s cash flow problems.

PSO is now only supplying 14,000 tons of furnace oil a day to the power companies, as opposed to their demand of about 20,000 tons. “We have curtailed the fuel supply despite several warnings to the power companies about our critical financial position,” said the PSO official.

As a result of the lower fuel supply, the electricity shortfall in the country – currently at 3,400 megawatts, or about 30% of demand – is expected to increase. Power production is already expected to go down due to the regularly scheduled closing of the canal system for cleaning, which reduces the hydroelectric power production in the country.

“After the cut in the oil supply, [thermal] power production will also decline by 30%,” said Abdullah Yousaf, the chairman of the Independent Power Producers Advisory Council, a lobbying group.

Published in The Express Tribune, January 12^th, 2012.