Oil purchase: Default looms as PSO has to pay Rs93b by next week

Ministry of Finance expected to release Rs25b in a couple of days.

ISLAMABAD:

State-run oil marketing company, Pakistan State Oil (PSO), is facing the spectre of imminent default on payments to international oil suppliers and is seeking a bailout in the face of long delay on the part of power producers to pay for fuel supply.

“PSO had defaulted on international payments last month and even international banks refused to open letters of credit (LCs) for oil import. The company may face a similar situation this time as well if its dues are not cleared,” an official of the Ministry of Petroleum and Natural Resources told The Express Tribune.



According to sources, PSO is to clear LCs for oil import on Friday (today) and Monday next week. For this, the company is to make a total payment of Rs93.34 billion to Kuwait Petroleum Corporation and other fuel suppliers.

On the other hand, power producers and other fuel buyers owe PSO Rs184.17 billion. Power plants, which have been supplied oil worth Rs165 billion, have to pay an overdue amount of Rs140 billion.

“PSO needs a substantial amount to clear LCs on Friday while Rs48 billion is required for payment on coming Monday,” the petroleum ministry official said, adding the Ministry of Finance was expected to release Rs25 billion in a couple of days to rescue the company.

When PSO could not pay Rs26 billion to world oil suppliers last month, the prime minister stepped in and the Economic Coordination Committee (ECC) approved guarantees for Rs33 billion worth of loans from commercial banks, officials said. Out of Rs33 billion, PSO got Rs20 billion.

Oil refineries, however, are running smoothly because of the LC arrangement made by the previous government between PSO and the refineries. “Now, PSO opens LCs for oil supplies through domestic refineries, but there is no such arrangement between power producers and PSO,” an official said. Talking to The Express Tribune, a PSO official said, “if the required amount is received from the government and customers, the company will not default in future.”

After coming to power in June last year, the PML-N government wiped out circular debt of Rs480 billion and with that PSO’s receivables had also come down to zero. However, the company’s receivables have once again swelled with fears of default looming large.

Though the government has increased electricity tariff to avoid circular debt and the regulator has allowed fuel price adjustment in consumer bills, the debt has emerged again due to inefficiency of power distribution companies.

PSO has been asking the Ministry of Water and Power to put in place a mechanism that can ensure smooth payments for oil supplies to electricity producers, but nothing has been done so far.

According to PSO officials, the company is supplying on average Rs32 billion worth of oil every month to power companies, which regularly default on payments. This could lead to disruption in oil supplies and their resumption would take months, officials said.

On June 12, PSO had to pay Rs12.677 billion to domestic refineries and Rs93.34 billion to international fuel suppliers.

On the other side, besides the power sector, PSO had to receive Rs280 million from National Logistics Cell, Rs743 million from Saba Power and Southern Electric, Rs893 million from Pakistan Railways and Rs10 billion on account of price differential claims on diesel, ethanol-10, furnace oil and petrol.

Published in The Express Tribune, June 13^th, 2014.

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