International oil suppliers are hesitant to ship supplies to Pakistan State Oil (PSO) without advance payment as the company has defaulted on several payments.
Officials of the Ministry of Petroleum and Natural Resources, in a meeting held on June 21 under the chairmanship of Finance Minister Ishaq Dar that discussed power outages in Ramazan, said PSO’s credit lines had been choked and payments were not received regularly and timely from power companies.
“The petroleum ministry has been doing its best to supply oil to the power sector and continues to do so, but some issues need to be resolved,” a ministry official said. “Even in the past, timely payments were promised to PSO for imports, but the promise was never honoured and the company had to face serious financial and supply issues.”
PSO had defaulted on five letters of credit (LCs) and this had serious implications. Premium went up and oil suppliers became hesitant to supply oil without advance payments, they said.
In June, only Rs2.4 billion was received from the power plants. The Ministry of Finance released Rs20 billion for PSO, which was not paid fully, and only Rs10 billion was provided.
Officials told the meeting that the water and power ministry’s demand for its own plants seemed to be on the higher side and as such plant-wise demand may be given along with payment schedule for placing import orders by PSO.
It was decided that the Ministry of Water and Power would provide detailed plant-wise requirement and payment schedule so that PSO did not face financial hardships in arranging the fuel.
“The cost of 22,000 tons per day supply on a monthly basis is Rs52.8 billion and the water and power ministry should give its payment schedule,” an official said.
The government wants to reduce load-shedding in Ramazan and wants PSO to supply 22,000 tons of furnace oil to power plants every day in a bid to enhance generation.
At present, PSO is supplying 18,000 to 20,000 tons per day to power plants. The power sector has no capacity to pay money for more than 11,000 tons of fuel oil per day, leading to financial crunch for PSO in case of enhanced supplies.
The power crisis may aggravate due to non-payment of dues by the power sector to the fuel supplier.
Officials said the Pakistan Electric Power Company (Pepco) was recovering Rs4 billion daily from the power consumers, but allocating only Rs200 to Rs250 million to PSO on account of fuel supply.
Pepco was also not paying money to the Independent Power Producers (IPPs) on account of power supply and as many as 15 IPPs had started invoking sovereign guarantees to recover their unpaid bills by serving final notice on the National Transmission and Dispatch Company (NTDC) and the government.
“We need Rs40 billion on an immediate basis to restore the LCs for oil import. The power sector was a big defaulter of PSO. The Ministry of Water and Power has been asked to chalk out a mechanism that can ensure smooth payments for oil supplies by electricity producers but nothing had been done so far,” the official said.
Though the government had raised power tariff to avoid accumulation of circular debt and the power regulator had been allowed to make fuel price adjustment but due to inefficiencies of power distribution companies, the circular debt had again shot up.
Published in The Express Tribune, June 29th, 2014.
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