Burgeoning circular debt: Power ministry scrambles to clear PSO dues

PSO has warned it will cut oil supply to all defaulters in the power sector.

ISLAMABAD:

As Pakistan State Oil (PSO) threatens to cut fuel supply to the power sector due to the ballooning circular debt, the Ministry of Water and Power has moved the Economic Coordination Committee (ECC) to approve a plan that allows it to raise Rs15 billion through the issue of term finance certificates (TFCs).

Sources told The Express Tribune that the Ministry of Water and Power had informed the ECC that PSO has warned it would cut supplies if it was not paid Rs40 billion on an immediate basis. It said that the Power Holding Company had worked out a plan to raise Rs15 billion to pay a part of the dues accruing to PSO by issuing TFCs through the National Bank of Pakistan (NBP).

“PSO warns of a disruption in oil supply if it is not provided Rs40 billion on immediate basis, which may lead to a crisis,” the power ministry said in a summary moved to the ECC. The ministry said that the power sector has paid Rs193 billion to PSO on account of fuel supply from July 22 to October 22, 2012.

Earlier, the government had issued Rs82 billion worth of TFCs against reserves of the Oil and Gas Development Company (OGDCL) to ease the circular debt. However, the situation worsened once again due to the non-payment of dues by the power sector to oil suppliers.



PSO faces a critical situation if it continues to supply oil due to a looming financial crunch. Due to the closure of CNG stations, the demand for petrol and diesel has skyrocketed, and people are facing problems in obtaining fuel due to sporadic shortages.

The average demand for petrol is around 6,000 to 8,000 tons per day, which has surged to 12,000 to 14,000 tons after the closure of CNG stations. The oil industry had projected that 270,000 tons of petrol would be demanded in December. “The demand in the ongoing month may go up further if the closure of CNG stations continues,” a PSO official said.

At present, PSO is also providing 18,000 tons of furnace oil per day to power plants, in addition to what is provided to Independent Power Plants (IPPs) on cash payment. “Due to canal closures, the demand for furnace oil has increased, and PSO needs more money to arrange imports,” the official said. He said the power sector was a big defaulter and was not paying its dues as per agreements. “PSO has been forced to continue supplies to the sector due to the instructions of the government, which has led to the mounting circular debt.”

Pakistan State Oil (PSO) is to pay over Rs91.2 billion to international oil suppliers, including the Kuwait Petroleum Corporation (KPC), on account of letters of credit (L/C) for oil imports. “If money is not provided to PSO, it may face a default on the L/Cs; causing a delay in oil imports which may aggravate the oil crisis in the country,” sources said.

In a letter sent to the petroleum, water and power and finance ministries, PSO has already warned that the crisis may also aggravate if Rs40 billion are not injected into the company in order to arrange furnace oil to meet the rising demand from thermal power plants.

Published in The Express Tribune, January 3^rd, 2013.                

Like Business on Facebook to stay informed and join in the conversation.