National issues: Circular debt envelops PIA, PSO

Oil marketing company highly unlikely to meet fuel requirement of national carrier from next week.

KARACHI:

Pakistan State Oil (PSO) is highly unlikely to meet fuel requirements of the national flag carrier from next week, officials told The Express Tribune, after the National Refinery Limited (NRL) suspended supply of jet fuel to the cash-strapped oil market company.

The crippling repercussion of the inter-corporate circular debt is now banging on the door of Pakistan International Airlines (PIA) at a time when it is operating key Hajj flights, they said.



“The D-day for PIA will either be September 23 or 24,” said an industry official, explaining that the airline owes PSO around Rs10 billion in overdue payments against jet fuel supply.

“In July 2013, PIA’s outstanding bill was only Rs1 billion, which has now swelled.

Dealing with PIA – which is under a debt of Rs270 billion – has become a major problem for PSO. “The airline is not even ready to pay financial charges on outstanding amounts. PSO has been forced to supply the product to PIA on credit.”

“Due the rising liabilities of country’s largest fuel supplier, this cannot continue,” the official said.

PSO owes various refineries over Rs16 billion in overdue payments. The fuel supplier itself is waiting for billions to be paid by power plants.

Independent power producers (IPPs), responsible for meeting most of the country’s electricity demand, are once again stuck in the quagmire of circular debt, which starts from state-run power distribution companies sitting over months’ old payables to IPPs.

The situation has reached a point where the IPPs have started placing advertisements, appealing to the government to clear its dues of Rs230 billion.

Many of the power plants have started scaling down production because of their inability to purchase fuel oil, most of which is supplied by PSO, industry people say.

The problem of circular debt has resurfaced in little over a year since the PML-N government settled the issue by releasing hundreds of billions of rupees to the IPPs soon after coming to power.

A PIA official played down the development. “This is a matter of routine now. We exchange a lot of letters with PSO back and forth on the subject. But it is not like our operations will come to a halt.”

He said that it was normal for companies to face delays in receiving payments when the business is done on credit.

PSO moves 8,000 to 9,000 tons of jet fuel worth around Rs1 billion to Rs1.1 billion to Karachi airport every month.

Clouds of uncertainty related to the recurring circular debt have hovered over Pakistan’s energy sector for years now. Industry people say that it has also discouraged investment despite the lucrative returns offered by the government to IPPs.

Published in The Express Tribune, September 19^th, 2014.

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