The Ministry of Finance has asked the central bank to waive its ‘per party limit’ on Pakistan State Oil (PSO) in an interim arrangement, which will enable the company to borrow more from banks and keep supplying fuel to power plants in required quantity, sources say.
The step, if taken, will lead to an increase in power production and reduction in hours-long outages.
Under the State Bank of Pakistan’s (SBP) rules, banks are allowed to lend a certain amount from their special reserves and following the concession, PSO will be able to acquire more loans to restore the letters of credit (LCs) that have been blocked because of delay in clearing dues.
PSO has defaulted on five LC payments worth Rs26 billion to international oil suppliers and global banks are reluctant to clear the LCs. Even fuel suppliers are hesitant to provide oil without advance payments.
According to sources, the top management of PSO took up the issue in a meeting chaired by Finance Minister Ishaq Dar.
PSO, a state-run oil marketing firm that has a major share in the domestic market, pointed out that Pakistan Electric Power Company (Pepco) was releasing only Rs5 billion against a monthly bill of Rs52 billion for fuel supply to meet the needs of power plants.
In response, the finance minister asked the Ministry of Water and Power to arrange at least Rs20 billion for the company. He voiced concern over sharply lower payments by Pepco to the oil supplier. According to officials, Pepco is making payments to banks against loans as well as clearing bills of independent power producers (IPPs) but PSO is experiencing a financial strain due to piling up of bills of power plants.
The company management told the finance minister that it was not in a position to retire the LCs opened for oil import. “PSO cannot afford to pay over Rs45 billion if power plants do not clear dues,” it said.
To reduce the strain, it sought easing of the ‘per party limit’ in order to increase borrowing from banks. The finance minister agreed to review the demand and now the finance ministry was asking the SBP to waive the condition as an interim arrangement, officials said.
Power plants owe Rs177 billion to PSO for fuel supply while total receivables of the oil marketing company touch Rs190 billion.
In the meeting, PSO sought a lifeline of Rs78 billion to purchase furnace oil for power plants. Of this, Rs23 billion was required to clear past liabilities and Rs55 billion was needed to supply roughly 22,000 tons of oil per day to power plants.
Published in The Express Tribune, July 16th, 2014.
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