On the edge: Furnace oil stock used up, massive blackout feared

PSO’s inability to replenish stocks leaves no fuel for power generation.


Zafar Bhutta January 14, 2015
PSO is left with no choice but to freeze its business with the power sector once current supplies are completely exhausted

ISLAMABAD:


The country is on the verge of a massive power crisis as the stock of furnace oil for power generation has been exhausted due to Pakistan State Oil’s (PSO) inability to replenish it through imports due to lack of funds.


Sources close to the director general of oil in the Ministry of Petroleum and Natural Resources told The Express Tribune that PSO’s stock of furnace oil has been fully used up and there is no supply for power plants for electricity generation.



“Owing to the issue of circular debt, power plants have maintained only two to three days of oil reserves, but now these have been completely consumed,” a source said, adding that the country was now utilising the stock of diesel to partially run power plants.

Despite PSO’s constant warnings, the federal government has failed to take measures to release funds through either the finance ministry or the power sector.

Sources added that the petrol and diesel reserves were also not satisfactory for PSO, which is taking the products from Shell.

Petroleum ministry officials said that PSO had requested for the release of Rs46 billion to restore the Letters of Credit (LC) which were blocked but the finance ministry released only Rs10 billion.

“The finance ministry is now expected to release Rs15 billion to bail out the company which has inflated receivables of over Rs200 billion,” said an official, adding that PSO would be required to streamline the furnace oil supply for at least 20 days if it receives the money.



In a letter sent to the petroleum ministry on December 30, 2014, PSO said that power sector receivables and their potentially adverse effects are causing a negative impact on the entity’s business viability.

In view of these receivables standing at Rs198 billion, PSO authorities added, they had also incurred penalties of approximately Rs250 million on account of delayed payments to banks for the October to December 2014 period.

Cash cycle suffering

The company also paid $1.8 million in demurrages from July to November 2014 and the supplier claims of $6.4 million due to delay in use of vessels and in opening of LCs respectively.

In view of the above situation, officials said that PSO was not able to open further LCs as the credit limit stands exhausted and the credit line of Rs110 billon is blocked.

PSO is left with no choice but to freeze its business with the power sector once current supplies are completely exhausted.

PSO had said that it could commence business with the power sector once its receivables were cleared or at least all liabilities on account of demurrages, damages to banks and suppliers are written off.

It also highlighted that lack of financing due to the power sector would also affect white oil supplies and its imports because of the blocking of LCs. The entity added that it was unable to continue supplies to the power sector and will stop further supplies of furnace oil unless its liabilities are discharged.

PSO had sought permission from the petroleum ministry to deal with the power sector as per contracts.

Published in The Express Tribune, January 15th, 2015.

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COMMENTS (42)

Kushal | 7 years ago | Reply

@ABKhan Man, its simple. The states which have surplus electricity like Bengal, or Punjab, will be better off if they can export electricity to neighboring countries, like Bangladesh or Pakistan respecitively, rather than other Indian states because of geographical location. Its a matter of applying common sense.

ABKhan | 7 years ago | Reply

@BruteForce:

"Some states have 24/7 Electricity my friend. Eg: Gujarat. Gujarat has electricity surplus that India tried selling to Pakistan"

Why the genius ruling your country didnt divert the surplus to other areas of the country which face blackouts for long periods?

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