Pak-Arab Refinery Company (Parco) has warned Pakistan State Oil (PSO) that it will stop the supply of fuel if the latter does not introduce a mechanism according to which it will open letters of credit to make advance payment for oil supply rather than getting deliveries on credit.
In an attempt to press PSO – the largest oil marketing company of the country, Parco has slowed down oil supply and is delivering less than the required quantity, sources say.
Parco is a joint venture between Pakistan and Abu Dhabi with 60% and 40% stakes respectively. Though Pakistan is a majority shareholder, the Abu Dhabi government has exercised control over the company.
Earlier in March, Parco also halted jet fuel supply to PSO, raising the spectre of a fuel crisis on airports of Punjab because of a biting circular debt, which has plagued almost entire energy chain of the country.
“Parco wants a mechanism that will ensure cash payment for fuel supply,” a member of the PSO board of management told The Express Tribune.
“This mechanism means that PSO will have to make advance payment before getting oil deliveries,” he said, adding the issue was taken up in a recent meeting of the board of management held in Karachi.
The board was asked to adopt a clear-cut policy as Parco was not ready to provide oil on credit, the board member said.
When contacted, a spokesperson for Parco stressed that the refinery had not stopped oil supply and was meeting requirements of PSO.
A PSO spokesperson commented: “There is no truth that Parco has suspended oil supply to PSO, which is lifting products daily from the refinery under existing arrangements.”
She said the PSO managing director’s vision called for lifting maximum quantity from local refineries, streamlining payments to them and also ensuring receipts from customers. “In order to ensure payments, we will be opening LCs for our suppliers (refineries) and taking LCs from customers. This vision is fully supported by the board of management and the petroleum ministry,” she said.
She said PSO was receiving 400 kilolitres of jet fuel, 250 kilolitres of petrol and 2,000 tons of kerosene oil on a daily basis from Parco.
An official of the Ministry of Petroleum and Natural Resources said the advance payment mechanism could not be implemented unless power companies expressed their willingness to open LCs for oil supply from PSO.
The petroleum ministry has already asked the finance ministry to guarantee payments for oil supply to the power sector on a daily basis but no progress has been made so far. According to a plan proposed by the petroleum ministry, power companies would have to ensure payments for oil and gas through letters of credit.
Published in The Express Tribune, May 11th, 2012.