Corporate results: PSO’s profits slump 32.75% in first quarter of fiscal year 2015

Officials concerned over declining global oil prices, say effects will be felt next quarter.

KARACHI:

The country’s largest petroleum distributor Pakistan State Oil (PSO) reported a 32.75% slide in net profit for the first quarter of fiscal year 2014-15.

The slump is mainly due to a sharp reduction in interest income on payments held up by other energy firms.

Financial results that showed a net profit of Rs5.24 billion in July-September 2014, compared to Rs7.8 billion during the same period previous year, was more than the analysts’ expectations.

Gross sales were slightly down 5.41% to Rs344.58 billion, over the comparable period due to slower volumetric sales of petrol, diesel and the furnace oil, said analysts.



Other income derived from interest earnings on delayed payments was down 66.74% to Rs3.37 billion.

In the last fiscal year, the company booked other income of Rs19.52 billion, up 228% over the previous year.

Repercussions of the steep slump in international oil prices, which began in October this year, will be felt in the coming quarter, warned company officials.

Tough times ahead

Consumers might be rejoicing over the prospect of a steep cut on the back of falling international prices but officials at the petroleum marketing and oil refining firms are biting their fingers in anticipation of possible losses.

“Things don’t look good. I actually fear a repeat of 2009 when PSO booked heavy loss,” said a senior company official.

To the layman, it appears that the marketing companies like PSO, Shell, Chevron and Attock Petroleum are protected as government translates the increase or decrease to consumers but that is hardly the case.

The companies are bound to maintain a few-days stock of petroleum products like diesel, which has been imported in the previous weeks.

“We gain and loss on this inventory. When the price goes up, we book a profit but when it decreases, there is a loss,” said the company official.



The consumers are paying the price on the basis of what the cost was in September. For instance, if a company imported three cargos of petrol in September at an average price of $922 per metric ton, the price at pumps came to around Rs103 per litre in October.

As per the government’s decision, petroleum product price for a current month is based on the imported average of the previous month.

“But now, if the average has come down to Rs63 a litre while we are still carrying a sizeable chunk of that stock then it translates into an inventory loss,” the official said.

PSO, being the dominant market player, is particularly exposed to this situation as it has the largest chunk of what is known as dead-stock that is always present in the 786km White Oil Pipeline, which takes petroleum products from Karachi to central Punjab.

Industry people say that it has become difficult for them to forecast oil price in recent weeks, making the job of locking import orders at the right time even harder.

Like everywhere else, Pakistan’s executives from oil firms have also taken to sharing opinions on what has caused the drop in oil price.

“One theory doing the rounds is that Saudi Arabia, pushed by the US, is not increasing oil output so that Russia could be pressurised over foreign policy issues,” said a senior industry official.

Published in The Express Tribune, October 29^th, 2014.

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