Pakistan State Oil (PSO), perturbed at the government’s inability to clear outstanding bills apparently due to current political unease, could default again on payments to international fuel suppliers next week, raising the spectre of interruption to oil imports, officials say.
PSO, the oil marketing giant, has already failed to clear five letters of credit (LCs) about a month ago because of delay in its receipts and the company is again on the brink of financial collapse.
According to officials, the finance minister and finance secretary had approved the release of Rs20 billion to bail out PSO, but the long marches and sit-ins in front of parliament by some political parties hampered routine official work at the finance ministry.
PSO immediately needs Rs32 billion to make payments to the fuel suppliers, including domestic refineries.
“If the government does not release funds until Monday, PSO would be facing default on international payments,” cautioned a senior official of the Ministry of Petroleum and Natural Resources.
The company had sent an SOS message to the petroleum, finance, water and power ministries and the prime minister, seeking a swift release of money, he said.
Officials point out that PSO’s receivables have touched the Rs200-billion mark for the first time during the present government and the company is teetering on the brink of financial collapse.
Relevant ministries and the premier were informed on Friday about the company’s financial constraints and the ballooning receivables.
PSO officials said they had also stopped paying domestic oil refineries and warned that oil supplies in the country could be disturbed if their bills were not cleared. Power producers are the major defaulters of PSO as they are not paying for oil purchases on time.
According to them, the power plants have paid only Rs3.5 billion in the current month and have still to pay Rs180 billion for fuel purchases.
The Pakistan Electric Power Company (Pepco) is recovering Rs4 billion per day from electricity consumers, but is setting aside only Rs200 to Rs250 million for PSO.
International oil suppliers have shown reluctance and sought advance payments following defaults by PSO. This has also pushed up premium on oil purchases.
The petroleum ministry, in a meeting on power outages in Ramazan held on June 21 with Finance Minister Ishaq Dar in the chair, said PSO’s credit line had been choked and payments were delayed frequently by power companies.
“The petroleum ministry has been doing its best to supply oil to the power producers and continues to do so, but some issues need to be resolved,” a ministry official said.
“Even in the past, timely release of funds was promised to PSO for a smooth flow of oil imports, but the promise was never kept and the company had to face serious financial and supply issues,” the official said.
Published in The Express Tribune, August 24th, 2014.
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COMMENTS (3)
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Now I'm really worried about the proposed Natural gas deal b/w India and Pakistan to be undertaken by GAIL. Who guarantees the payments? It's better that we focus our energies elsewhere.
@Kamran: In countries you refer to, oil imports are primarily for the purpose of driving cars. In Pakistan, 70% of power plants use oil as a fuel. These power plants are unable to recover costs from consumers and unale o cut power supply of those who do it pay due to political pressure. Hence they in turn do nit pay PSO.
Fancy financial products such as those you suggest will not solve the basic prolem that people consume oil without paying for it making PSO higly delinquent and destroying its creditworthiness.
One the problems is that there are no forward option contracts. PSO and other domestic fuel companies could hedge themselves by purchasing calls and puts to counter the effect of rapid price movement in the international markets. In civilized countries, the price of petrol and diesel changes every day at fuel stations depending on the current price of crude. Consumers pay the going rate directly and the government does not subsidize prices It's time that the market in Pakistan was allowed to fluctuate. The Paki government is full of a bunch of incompetent bureaucrats who do not know the first thing about the energy markets. A government sanctioned hedging initiative would greatly minimize these insolvency issues brought about by price fluctuations.