PSO unable to pay: Banks block Rs93b worth of LCs for oil import

Company fears supply chain disruption, seeks release of Rs46b.

ISLAMABAD: A breakdown in the oil supply chain is feared across the country as oil imports may come to a halt after international banks blocked Rs93 billion worth of letters of credit (LCs) of Pakistan State Oil (PSO) due to default on payments.

In a letter to the federal government, PSO, the oil marketing giant, said the company had exhausted its borrowing limit, defaulted on payment of Rs46 billion against LCs and consequently Rs93 billion worth of LCs had been blocked.

It pointed out that the company had been supplying fuel oil to power producers on a special credit facility on the instructions of the government to reduce electricity outages in the national interest. “This has resulted in accumulated receivables of Rs197 billion from these entities,” it said.



“The banks concerned have made it clear that in case of continuous default, they will have to review their relationship with PSO and block the funded and non-funded limits extended to the company until the resolution of the issue.”

In view of this situation, the company said its institutional reputation and business relationship with the suppliers and banks had been adversely affected and further failure on its part to honour payment obligations could be seriously detrimental for the company and the country.

PSO feared that besides the disruption in the company’s supply chain due to default, the delay in receipts from the power sector could have very serious financial, regulatory and political implications and a considerable time would be required to put the supply chain back on track and restore the confidence of suppliers.

“As you are aware, we continue to make serious efforts for the recoveries by taking up these issues regularly with the customers and government offices,” the company said.

Considering the gravity of the situation and the government’s instructions to continue supplies on credit, PSO sought immediate intervention of the Ministry of Petroleum and Natural Resources to resolve the issue and get the receivables settled.

It stressed that some actions may be taken to enable the company to deal with the situation in order to avoid breakdown of the supply chain.

It called for the immediate release of Rs46 billion to retire the LCs and a further Rs28 billion to honour upcoming international and local payment obligations by the end of December.

Published in The Express Tribune, December 27^th,  2014.

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