PSO cuts by half furnace oil supply to power plants

Cash crunch puts pressure on oil marketing giant as stocks fall.

ISLAMABAD: Pakistan State Oil – the state-owned oil marketing giant bitten by financial crunch – has announced that it will further scale down fuel supplies to power plants by 50% as stocks are falling rapidly, setting off fears of a power crisis.

Earlier, PSO had been supplying on credit 22,000 tons of furnace oil per day to power plants, but the cash crunch forced it to curtail the quantity to 15,000 tons. On Monday, PSO announced a further reduction to 8,000 tons per day.

The oil marketing firm took the decision following release of a meagre Rs5 billion on Monday against demand for Rs50 billion for clearing part of its receivables. Now, it has sought immediate release of Rs45 billion to stave off imminent default on payments to local and international fuel suppliers.

In a letter sent to the finance, water and power ministers and adviser to the prime minister on petroleum and natural resources, PSO said “keeping in view the current stocks and the uncertain chain position, PSO is compelled to reduce the current credit rate from 15,000 to 8,000 tons per day.”



According to company officials, it will be constrained to slash supplies to credit customers from Tuesday – 2,500 tons to Hub Power Company, 2,500 tons to Thermal Power Station Muzaffargarh, 1,000 tons to TPS Jamshoro and 2,000 tons to Kot Addu Power Company (Kapco).

“In the absence of an urgent financial relief from the government and Pepco, PSO is unable to open new letters of credit (LCs) for planned HSFO (high sulphur fuel oil) and LSFO (low sulphur fuel oil) imports, which will disrupt fuel supply chain of the country,” the letter said.

This could deal a blow to the government’s efforts to end power outages to send a positive signal to the voters before upcoming elections.

At present, power shortfall stands at 4,000 megawatts at peak hours, leading to outages across the country. According to an official of the Ministry of Water and Power, electricity generation was 9,500MW compared to demand for 13,500MW at peak hours.

Sources revealed that high-ups of the petroleum ministry and PSO, in a meeting with the prime minister and finance minister on Friday, took up the issue of possible default by PSO on payments to fuel suppliers due to failure of power firms to clear their unpaid bills. However, the finance minister promised release of only Rs5 billion.

“We received Rs5 billion on Monday and got no further commitment,” a PSO official said.

An official of the petroleum ministry said PSO’s receivables had piled up to Rs158 billion, which had to be paid by various entities including power companies, adding PSO had itself to pay Rs50 billion to furnace oil suppliers in 10 days. It also has to clear an outstanding amount of Rs32 billion accumulated over the past three months.

“Any disruption in furnace oil supply will lead to massive load-shedding across the country and in case PSO defaults, the resumption of fuel supply will take up to 45 days,” the official said.

As PSO faces difficulties in opening new LCs for import of furnace oil, the demand is rising because of gas shortage. “PSO needs payment of Rs82 billion from the defaulting entities to cope with the situation,” he added.

Published in The Express Tribune, February 12^th, 2013.

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