Circular debt holding economy hostage
The economy is being held hostage by the circular debt crisis, said MD PSO Irfan Qureshi.
KARACHI:
The economy is being held hostage by the circular debt crisis. This was asserted by Managing Director Pakistan State Oil Irfan Qureshi while addressing journalists at the company’s head office here on Friday.
“PSO is the country’s biggest company in terms of revenue and its bottom line has been hurt by high financing costs attributable to non-receipt of receivables on a timely basis,” he highlighted.
Earnings
Pakistan State Oil achieved after tax earnings of Rs9.05 billion in fiscal 2009-10 as compared to a loss after tax of Rs6.7 billion in the preceding financial year. The company’s sales revenue has also touched Rs877 billion, compared to sales of Rs719 billion seen last year.
Qureshi explained that turnover tax from last year was adjusted in the company’s books this year, causing a significant dent in earnings. He said that the increase in turnover tax from 0.5 per cent to 1 per cent caused a big jump in the taxes paid by the company. Total taxes payable by the company had almost doubled to Rs9.05 billion against Rs4.66 billion due last year.
PSO has also declared a cash dividend of Rs5 per share in its financial results. An interim dividend of Rs3 had been announced earlier this year, taking the total annual dividend for fiscal 2009-10 to Rs8.
Growth
PSO sold 14.2 million tons of Petroleum, Oil and Lubricant (POL) products during the year, as compared to 13.2 million tons during the preceding year. In black oil, the company enhanced its market share from 85.8 per cent to 88.2 per cent.
Sales volumes for furnace oil also grew by 17.8 per cent over the same period compared to an industry-wide increase of 14.6 per cent. This surge has been attributed to increase in demand from the power generation sector.
The company also posted a volumetric increase of 20.9 per cent in sales of motor gasoline. However, the company experienced a fall of 9.7 per cent in sales of high speed diesel in the outgoing year.
Debt
The MD stressed that the circular debt crisis has continued to remain a serious problem as power sector customers repeatedly defaulted on payments. On June 30, the company’s receivables stood at a staggering Rs117.5 billion.
Consequently, the company had to rely heavily on bank borrowings, incurring financial charges of Rs9.9 billion in the outgoing year, compared to Rs6.2 billion in fiscal 2008-09.
Qureshi revealed that the company had collected Rs5.7 billion from two independent power producers, Hubco and Kapco, in the outgoing fiscal and that another Rs14 billion was expected within a week by the power providers.
He pointed out that the company had outstanding receivables of Rs130 billion at present.
Criticising the increase in turnover tax, Qureshi hinted that the company may post after tax losses in the current financial year if the tax rate is not reduced. At present, the 1 per cent turnover tax is levied regardless of whether the company incurs a loss or makes a profit.
Future
As part of a three-step agenda to improve profitability, PSO plans to re-launch its lubricants after Ramazan. “Other companies are earning significant profits with their lubricant products,” explained Qureshi.
“We need to work on backward integration. Due diligence on Pakistan Refinery is being conducted and once it is completed we will decide whether it is profitable for us to buy that refinery,” he disclosed.
The managing director stressed on the need of building storage facilities for POL products, particularly in southern Punjab. He explained that more storage would help the country cope with supply concerns during emergencies such as the current flooding of Punjab and Khyber-Pakhtunkhwa.
“Storage capacity for POL products is only about one million tons right now,” added Qureshi.
Responding to a question, Qureshi said that the federal government is working on a plan to resolve the circular debt problem and a solution may be reached within the next 15 days.
However, he warned: “Once this issue is resolved, all institutions involved will have to ensure on an individual basis that this crisis does not emerge again.”
Published in The Express Tribune, August 7th, 2010.
The economy is being held hostage by the circular debt crisis. This was asserted by Managing Director Pakistan State Oil Irfan Qureshi while addressing journalists at the company’s head office here on Friday.
“PSO is the country’s biggest company in terms of revenue and its bottom line has been hurt by high financing costs attributable to non-receipt of receivables on a timely basis,” he highlighted.
Earnings
Pakistan State Oil achieved after tax earnings of Rs9.05 billion in fiscal 2009-10 as compared to a loss after tax of Rs6.7 billion in the preceding financial year. The company’s sales revenue has also touched Rs877 billion, compared to sales of Rs719 billion seen last year.
Qureshi explained that turnover tax from last year was adjusted in the company’s books this year, causing a significant dent in earnings. He said that the increase in turnover tax from 0.5 per cent to 1 per cent caused a big jump in the taxes paid by the company. Total taxes payable by the company had almost doubled to Rs9.05 billion against Rs4.66 billion due last year.
PSO has also declared a cash dividend of Rs5 per share in its financial results. An interim dividend of Rs3 had been announced earlier this year, taking the total annual dividend for fiscal 2009-10 to Rs8.
Growth
PSO sold 14.2 million tons of Petroleum, Oil and Lubricant (POL) products during the year, as compared to 13.2 million tons during the preceding year. In black oil, the company enhanced its market share from 85.8 per cent to 88.2 per cent.
Sales volumes for furnace oil also grew by 17.8 per cent over the same period compared to an industry-wide increase of 14.6 per cent. This surge has been attributed to increase in demand from the power generation sector.
The company also posted a volumetric increase of 20.9 per cent in sales of motor gasoline. However, the company experienced a fall of 9.7 per cent in sales of high speed diesel in the outgoing year.
Debt
The MD stressed that the circular debt crisis has continued to remain a serious problem as power sector customers repeatedly defaulted on payments. On June 30, the company’s receivables stood at a staggering Rs117.5 billion.
Consequently, the company had to rely heavily on bank borrowings, incurring financial charges of Rs9.9 billion in the outgoing year, compared to Rs6.2 billion in fiscal 2008-09.
Qureshi revealed that the company had collected Rs5.7 billion from two independent power producers, Hubco and Kapco, in the outgoing fiscal and that another Rs14 billion was expected within a week by the power providers.
He pointed out that the company had outstanding receivables of Rs130 billion at present.
Criticising the increase in turnover tax, Qureshi hinted that the company may post after tax losses in the current financial year if the tax rate is not reduced. At present, the 1 per cent turnover tax is levied regardless of whether the company incurs a loss or makes a profit.
Future
As part of a three-step agenda to improve profitability, PSO plans to re-launch its lubricants after Ramazan. “Other companies are earning significant profits with their lubricant products,” explained Qureshi.
“We need to work on backward integration. Due diligence on Pakistan Refinery is being conducted and once it is completed we will decide whether it is profitable for us to buy that refinery,” he disclosed.
The managing director stressed on the need of building storage facilities for POL products, particularly in southern Punjab. He explained that more storage would help the country cope with supply concerns during emergencies such as the current flooding of Punjab and Khyber-Pakhtunkhwa.
“Storage capacity for POL products is only about one million tons right now,” added Qureshi.
Responding to a question, Qureshi said that the federal government is working on a plan to resolve the circular debt problem and a solution may be reached within the next 15 days.
However, he warned: “Once this issue is resolved, all institutions involved will have to ensure on an individual basis that this crisis does not emerge again.”
Published in The Express Tribune, August 7th, 2010.