Circular debt woes: Alarm bells ring in PSO as international bank questions creditworthiness
Fears rise that PSO’s inability to pay dues may damage Pakistan’s credit rating.
Deutsche Bank has said PSO may face problems in dealing with oil businesses in the Middle East if it continues defaulting on L/Cs issued for oil import. PHOTO: COMPANY WEBSITE
ISLAMABAD:
Prime Minister Mir Hazar Khan Khoso has been informed that Pakistan State Oil (PSO)’s creditworthiness has been questioned in the global financial market, and that at least one leading international bank has expressed serious concern over a default on Letters of Credit (L/Cs) issued by the oil marketing giant. It is feared that PSO’s inability to pay its dues may have serious implications on the creditworthiness of the country.
According to sources, Deutsche Bank has written a letter to PSO over a default on a L/C, implying that the latter is losing its credibility in the financial market. “PSO may face problems in dealing with oil businesses in the Middle East if it continues defaulting on L/Cs issued for oil imports,” sources said while quoting the letter. They added that this was an alarming development for the state-run giant, which is on the brink of defaulting on other international payments due to the burgeoning circular debt in the nation’s power sector.
“Yes, the bank wrote a letter to us at a time when an oil supplier’s ship was stuck at the Karachi port and PSO was not able to meet its obligations due to a shortage of funds,” a senior PSO official told The Express Tribune.
According to sources, the prime minister was presented with an unflattering appraisal of the energy sector in a meeting held on April 4, 2013, during which the issue of oil supply to power generating units was also discussed. The prime minister was informed that PSO had defaulted on its L/C commitments and payments to the Kuwait Petroleum Company (KPC) due to irregular payments by the power sector.
The prime minister was also informed that PSO required around Rs41 billion per month in order to continue supplies of 16,000 tons of fuel oil per day to the power sector, out of which Rs5-6 billion would be on cash sales basis, while Rs35 billion would be released on account of credit sales. It was also informed that the Ministry of Water and Power had agreed to pay Rs11.3 billion during the month of March, but had been unable to make the payment so far.
The petroleum secretary sought a firm commitment from the finance and power ministries for the timely payment of future L/Cs issued during April through May. He also clarified that in case of enhanced supplies in the summer season, when electricity demand touches a peak, additional funds will be required; including the availability of additional credit lines from the National Bank of Pakistan worth Rs55 billion.
He also said that the Ministry of Water and Power did not have the ability to pay for fuel supplies, and the Ministry of finance would therefore have to do its part in ensuring timely payments for fuel oil procured for the power sector. He observed that the patterns of payments made by the power sector to PSO reflected that the Pakistan Electric Power Company was paying only 13% of its dues, while the remaining 87% was being arranged by the Ministry of Finance.
Published in The Express Tribune, April 21st, 2013.
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Prime Minister Mir Hazar Khan Khoso has been informed that Pakistan State Oil (PSO)’s creditworthiness has been questioned in the global financial market, and that at least one leading international bank has expressed serious concern over a default on Letters of Credit (L/Cs) issued by the oil marketing giant. It is feared that PSO’s inability to pay its dues may have serious implications on the creditworthiness of the country.
According to sources, Deutsche Bank has written a letter to PSO over a default on a L/C, implying that the latter is losing its credibility in the financial market. “PSO may face problems in dealing with oil businesses in the Middle East if it continues defaulting on L/Cs issued for oil imports,” sources said while quoting the letter. They added that this was an alarming development for the state-run giant, which is on the brink of defaulting on other international payments due to the burgeoning circular debt in the nation’s power sector.
“Yes, the bank wrote a letter to us at a time when an oil supplier’s ship was stuck at the Karachi port and PSO was not able to meet its obligations due to a shortage of funds,” a senior PSO official told The Express Tribune.
According to sources, the prime minister was presented with an unflattering appraisal of the energy sector in a meeting held on April 4, 2013, during which the issue of oil supply to power generating units was also discussed. The prime minister was informed that PSO had defaulted on its L/C commitments and payments to the Kuwait Petroleum Company (KPC) due to irregular payments by the power sector.
The prime minister was also informed that PSO required around Rs41 billion per month in order to continue supplies of 16,000 tons of fuel oil per day to the power sector, out of which Rs5-6 billion would be on cash sales basis, while Rs35 billion would be released on account of credit sales. It was also informed that the Ministry of Water and Power had agreed to pay Rs11.3 billion during the month of March, but had been unable to make the payment so far.
The petroleum secretary sought a firm commitment from the finance and power ministries for the timely payment of future L/Cs issued during April through May. He also clarified that in case of enhanced supplies in the summer season, when electricity demand touches a peak, additional funds will be required; including the availability of additional credit lines from the National Bank of Pakistan worth Rs55 billion.
He also said that the Ministry of Water and Power did not have the ability to pay for fuel supplies, and the Ministry of finance would therefore have to do its part in ensuring timely payments for fuel oil procured for the power sector. He observed that the patterns of payments made by the power sector to PSO reflected that the Pakistan Electric Power Company was paying only 13% of its dues, while the remaining 87% was being arranged by the Ministry of Finance.
Published in The Express Tribune, April 21st, 2013.
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