Pakistan State Oil ‘on its knees’

Threatens to restrict supply on credit, which will mean more blackouts.

Pakistan State Oil (PSO) may default on payments due this month unless state-run companies pay at least partially for their oil, a company spokesperson said on Thursday. The oil marketing giant’s situation is putting energy supply at risk and threatening increased blackouts ahead of key elections.

PSO said last week it would be dramatically cutting back on the amount of oil companies can buy on credit, an action that would worsen daily power cuts. Pakistan State Oil is owed $1.5 billion, mostly by government-owned electricity companies, but also by the state airline and railways. It owes suppliers $1.23 billion. Around two-thirds of Pakistan’s energy is generated by oil and gas.

Pakistan State Oil said it had received payments of $200 million this month, but needed another $250 million within a week to pay its creditors.

“We have a liquidity crisis and we need funds urgently to keep the wheels going. In case – god forbid – we can’t pay the banks or our suppliers, it will be a problem for Pakistan,” spokeswoman Mariam Shah told Reuters. “We supply the airlines, we supply the defence forces, the government. If they start paying us on time, this kind of crisis would never ever emerge.”

Power cuts typically become far worse in the sweltering summer months, when increased usage of fans and air conditioners becomes a major drain on electricity supply.

The cuts are the result of government-imposed rules that mean electricity companies must sell power below the cost it takes to generate it. The cash-strapped government is supposed to compensate the companies for the money they lose, but only makes late and partial payments. The power companies then cannot pay suppliers like Pakistan State Oil for the fuel they use. The problem is exacerbated by wealthy or influential consumers, including most government agencies, who refuse to pay huge utility bills for their homes and factories.

“This lack of payment has brought the nation’s largest and most profitable public company to its knees, and may consequently lead to a breakdown in the oil supply chain which will result in increased blackouts and load-shedding across the country,” the company said in a statement last week.

The Ministry of Petroleum and Natural Resources had appealed to the government to release extra funds, said spokesman Irfan Qazi.

“We have asked the Finance Ministry to release some of the amount to PSO so they could be saved from default,” he said. “The Finance Ministry has been releasing funds piecemeal.”

Published in The Express Tribune, February 22^nd, 2013.

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