PSO warns of freezing ties with power producers

Says it is unable to import oil, will halt supplies after stocks run dry.

ISLAMABAD: Sending warning signals, state-run oil marketing company Pakistan State Oil (PSO), shaken by a cash strain and default on payments to international banks and oil suppliers, has said it will be forced to halt business with power producers if the overdue amount is not released.

In a letter to the Ministry of Petroleum and Natural Resources on December 30, PSO pointed out that billions of rupees owed by the power producers and their potentially damaging impact were affecting viability of the company’s business.

In view of these receivables which stood at Rs198 billion, PSO said it had borne penalties of approximately Rs250 million for delay in payments to banks from October to December 2014.

It also paid $1.8 million in demurrages from July to November last year and settled damages claims of about $6.4 million of the suppliers because of delay in offloading cargo from vessels and in opening letters of credit (LCs).

In this situation, PSO was unable to open new LCs as the company’s credit limits had already been exhausted and LC lines of Rs110 billon were blocked. “We are left with no choice but to freeze business ties with the power sector once current supplies are exhausted.”

Though the company had placed tenders with the Kuwait Petroleum Company for the supply of light sulphur fuel oil (LSFO), but they were not followed up as LCs could not be opened.

“Once the promised Rs10 billion is released, we would be able to import relevant cargoes,” the company said, adding considering the quantity currently available and the 20-day time required to bring further cargoes, Kot Addu Power Company (Kapco) would likely face a halt to oil supplies.

In response to the request for increasing oil supply from 1,500 tons to 4,500 tons per day, PSO suggested that if it was agreed the number of days covered would come down from 37 to 13.

On the other hand, alternative fuel – high-speed diesel – for Kapco could be supplied only against advance payments.

Similarly, with the acceptance of the request for increase in supplies to Hub Power Company (Hubco) from 5,000 to 7,000 tons per day, the number of days covered would fall from 18 to 12.

However, Hubco uses special-grade furnace oil and a vessel carrying the imported cargo is waiting for berth.

PSO said it would continue providing oil until the stocks lasted. Other power companies would also continue to receive oil as long as the stocks were exhausted. “The supply of furnace oil will run dry unless funds are received immediately.”

PSO suggested that it could resume business with the power sector after the receivables were paid or at least all liabilities on account of demurrages and damages claims of banks and suppliers were cleared.

It sought permission of the Ministry of Petroleum to deal with the power companies according to the contracts.

The company also highlighted that the cash crunch would also affect white oil supplies and its imports.

Published in The Express Tribune, January 3^rd, 2015.

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