Petroleum products: PSO willing to buy but won’t heed to Byco’s condition

Oil refinery demands letter of credit, state entity finds proposition difficult


Saad Hasan August 06, 2014

KARACHI:


Pakistan State Oil (PSO) stands ready to buy petroleum products from the troubled Byco refinery but it cannot do that at the cost of piling burden on its already leveraged books, officials told The Express Tribune.


Byco International Incorporated’s (BII) 120,000 barrels per day (bpd) oil refinery has run intermittently since commercial production started earlier this year because of financial constraints and difficulty to find market for its key high speed diesel (HSD) products.

“PSO has no issues with Byco. We just want reliable supply and that’s all,” said a senior official of the state-run petroleum marketing giant. “But Byco wants us to give them letter of credits (LCs), which they can use to import crude oil. That proposition appears difficult.”

PSO has a monthly limit of around Rs100 billion to borrow from banks to import petroleum products like HSD and furnace oil. Extending that would require government intervention and consent of the State Bank of Pakistan, the official added.

Being a government entity, PSO faces minimal risk of default and banks would easily raise the credit limit for the company to accommodate Byco. But that seems unlikely now as the government plans to use PSO’s balance sheet, which reflects annual sales revenue of over Rs1.2 trillion, to import liquefied natural gas (LNG) from next year.

BII has built country’s largest oil refinery and petrochemical complex with an investment of around $600 million. The sheer size of the refinery requires at least 3 tankers with 70,000 tons of crude oil to be imported every month. That means financing lines of Rs15 billion to Rs16 billion.

PSO buys petroleum products from local refineries on a 30-day credit, paying for the products after a month. In essence, Byco wants to use the LCs from PSO as assurance to convince banks to finance its own crude oil imports.

Byco’s refinery, located in Hub, Balochistan, has faced difficulty in taking diesel to customers, most of which are based in Punjab and further north. Initially when the refinery was being set up, BII hoped to use Asia Petroleum Limited’s (APL) 82-kilometre long pipeline to move diesel to Port Qasim. But negotiations with the APL sponsors did not materialise.

The APL pipeline is used to supply furnace oil to Hub Power Company’s 1,300 megawatts (MW) power project, which is Byco refinery’s next-door neighbour. APL charges $12 per ton to transport that furnace oil from the port. Byco says it couldn’t have matched that.

As an alternative, the company came up with a plan to ferry diesel from its refinery to Port Qasim from where it could be pumped upcountry through cross country white oil pipeline. HSD makes up 40% of the refinery’s output.

Byco has a single point mooring (SPM) facility, a floating jetty connected with storage tanks with a 15km long pipeline, which allow ships to take and offload oil without coming to the shore.

The company has already retrofitted the facility with pumping machines to pump diesel into the ships. A tanker will be hired to move the cargo. The entire operation from filling 50,000-ton tanker, shipping it to Port Qasim and then offloading it will take three-and-a-half days.

BII estimates that it will cost around 70 paisa per litre to take diesel from the refinery to Port Qasim and this amount should be covered under the inland freight equalisation margin (IFEM), a central pool of funds used to keep price of petroleum products same across the country.

However, government has yet to give a nod for recovering this cost from IFEM.

Some industry people also say that there is a strong lobby within PSO that favours purchase of HSD from Kuwait Petroleum Company (KPC) instead of Byco.  But a senior PSO official denied the allegation and said that it was the government, which has forbidden it to disturb import volumes of 2.7 million to 3 million tons of HSD from KPC.

“As a matter of fact, before we were locking orders for 2014 with KPC, we asked Byco for their supply schedule but they didn’t provide any confirmation.”

Published in The Express Tribune, August 7th, 2014.

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COMMENTS (6)

What? | 6 years ago | Reply

Who is backing PSO's stubbornness in the Govt? What our leaders are planning fir the economy of they Corporations are not paying their dues on time? The money the Govt spent on domestic expenditures on cost is the one that trickles down to small businesses and eventually to end consumers. How our Govt is expecting to turn the economy around if it's Dept and Semi corporations don't release the money to businesses who cater to them? What a shame?

Salman | 6 years ago | Reply

This article is making PSO look like an angel. On the contrary, PSO is a defaulter on its international commitments. PSO is the key reason for this accumulated again Circular Debt and PSO does not pay anyone in 30 days. Example of poor journalism, presenting facts without doing proper homework.

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