Finance ministry releases just enough to keep PSO afloat

The ministry has released Rs12 billion on an urgent basis to Pakistan State Oil.

KARACHI: The finance ministry has released Rs12 billion on an urgent basis to Pakistan State Oil (PSO) in order to help the public-sector oil marketing company avoid default. The release comes a day after the PSO management suspended supplies of furnace oil to independent power providers Hub Power Company (Hubco) and Kot Addu Power Company (Kapco).

“The finance ministry released a payment of Rs12 billion to PSO today (Saturday) and has also given assurances that another Rs24 billion will be paid to the company by Tuesday, September 21,” the PSO spokesperson told The Express Tribune. “In light of the release and commitments, we are resuming supplies to Hubco and Kapco.”

But analysts commented that the latest move by the finance ministry is a stop-gap arrangement at best. “The government will have to come up with a comprehensive solution to inter-corporate debt,” pointed out Khurram Shehzad, Research Head at InvestCap.

The PSO management has also highlighted that the company is facing difficulties in collecting outstanding receivables worth more than Rs149 billion from its customers. “About Rs120 billion of these outstanding dues are owed by the power sector,” said the company’s spokesperson.

PSO’s profitability has suffered because of mounting receivables. In the last fiscal year, the company’s financing cost stood at a towering Rs9 billion.

Petroleum ministry officials claim they are working on a permanent fix for circular debt but sources have informed that hopes for an early solution have been dashed by recent floods in the country as a plan to divert funds from the budget to meet power sector dues has been shelved in favour of flood relief efforts.

Prior to the release of funds by the finance ministry, PSO had also delayed the awarding of import tenders for the months of October and November. The delayed orders would have been for about 650,000 tons of petroleum products and a delay or cancellation in delivery may hold dire consequences for the country’s energy sector. Even after these assurances, the supply of fuel in the country remains choked.

Sources have disclosed that a decision on whether import orders will be scaled down or restored to prior plans will be taken by the senior management on Monday.

Meanwhile, PSO’s managing director, Irfan Qureshi, has asserted that the company has an abundant stock of petrol. While talking to reporters on Saturday, he reiterated that the issue of circular debt must be addressed on a long-term basis.

Published in The Express Tribune, September 19^th, 2010.