ISLAMABAD: Fuel stocks with power plants have dropped to such levels that they can meet only three days of requirements following an unchecked surge in inter-corporate debt that has hurt Pakistan State Oil’s (PSO) efforts to keep supplying enhanced volumes of oil, sources say.
This comes just ahead of the start of Ramazan when the government has pledged to reduce power outages to facilitate people during Sehr, Iftar and prayer (Taraweeh) timings.
Instead, the lower fuel stocks, the outcome of long delay in payments by power producers to the oil supplier, may lead to an increase in electricity outages in the country.
According to sources, power plants are required to keep fuel stocks for 10 days to avoid any disruption in electricity generation.
“The main reason behind the thin fuel supplies to power plants is the failure of Pakistan Electric Power Company (Pepco) to make regular payments,” an official told The Express Tribune.
Pepco was recovering Rs4 billion a day from power consumers, but it set aside only Rs200 to Rs250 million for PSO on account of oil supply, he said.
Pepco is also not paying the independent power producers (IPPs) for electricity supply, prompting 15 IPPs to start invoking sovereign guarantees for the recovery of unpaid bills by serving a final notice on the National Transmission and Dispatch Company (NTDC) and the government.
In 2012, eight IPPs had initiated the process of invoking sovereign guarantees, triggering a legal battle with the government. Later, their outstanding bills were paid off partially on court’s orders.
A same situation has emerged this time too when apart from the IPPs, state-run oil marketing giant, PSO, is also struggling to cope with its dwindling finances and is on the verge of default on payment to international oil suppliers.
The circular debt, which the PML-N government cleared in June last year by releasing Rs480 billion, has surged again to over Rs500 billion.
“We need Rs40 billion immediately to revive letters of credit (LCs) for oil import, which had been blocked due to delay in clearing dues,” an official of the Ministry of Petroleum and Natural Resources said.
He said they had taken up the matter with the water and power and finance ministries for the release of funds from the pool of price differential claims, adding this would ensure continuous fuel supply and help PSO pay international oil suppliers on time.
PSO had defaulted on LCs worth Rs26 billion last month, resulting in international banks refusing to open LCs for oil import. Its receivables have swelled to Rs185 billion, of which power producers have to pay Rs150 billion.
With a plan to curtail outages in Ramazan, the government was asking PSO to supply 22,000 tons of furnace oil per day to power plants to help them enhance electricity generation, the official said. At present, the company is providing 18,000 to 20,000 tons of oil per day.
“Power plants lack capacity to pay for more than 11,000 tons of fuel oil, resulting in financial strain for PSO in case of enhanced supplies,” the official added.
Last month, Prime Minister Nawaz Sharif stepped in and the Economic Coordination Committee (ECC) approved guarantees against Rs33 billion worth of loans from commercial banks to bail out PSO. Now, in a new arrangement the company is opening LCs for oil supply from local refineries.
PSO is repeatedly asking the Ministry of Water and Power to chalk out a mechanism that can ensure smooth payments for oil supplies to electricity producers but to no avail.
Though the government has raised power tariff to avoid accumulation of circular debt and allowed the regulator to regularly revise tariffs under the fuel price adjustment mechanism, the debt has swelled again due to inefficiency of power distribution companies.
Published in The Express Tribune, June 27th, 2014.
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