Pakistan: Bailing out PSO

Reportedly, country’s largest oil marketing company, Pakistan State Oil (PSO) has committed technical default repeatedly because of cash crunch. Oil stocks are depleting fast and energy giant is likely to go ‘dry’ next month if enough loads are not procured on emergency basis.

If that happens, Pakistan may face complete blackout and economic activities also come to grinding halt. This is the outcome of contentious circular debt issue, which economic managers have failed in resolving, despite being fully cognizant of its horrendous impact. The irony is no one exactly knows the quantum of debt and also the possible ways to resolve the issue.

The immediate concern is the huge cash requirement to facilitate PSO keep operating normally. According to Petroleum Secretary Abid Saeed total receivables of the Company exceeds Rs138 billion. Another news item quoting petroleum ministry discloses PSO’s receivables from power sector alone hovering around Rs141 billion and receivables of gas companies touching Rs175 billion. This has created severe liquidity problems for the entire energy chain.

The break-up of PSO’s receivables indicates an amount of Rs48 billion outstanding against Wapda, Rs56 billion against Hubco, Rs11 billion against Kapco and Rs11.5 billion against KESC, being the top defaulters. As against this PSO’s payables pertaining to Kuwait Petroleum and other fuel suppliers added up to Rs73 billion on April 4, followed by Rs21 billion to Parco and Rs10 billion to Attock Oil.

Facing the cash crunch and having virtually defaulted on its payment PSO is buying smaller loads. It is seeking 700,000 tons of fuel oil for delivery over the next three months (April-July). This is about 15 per cent less than the volumes it had sought for February-April period.

It has been stated by PSO that fuel oil requirements of the state-owned enterprise are lower due to lesser requirement of power sector and sufficient inventories. PSO is being cautious to load too many cargoes as the demand from power sector is down due to mercury level still low and adequate inventory. This is a difficult pill to swallow keeping in view extensive load shedding going on in the country.

The fact remains that PSO had committed technical default for more than five times in recent days and the fuel supplier had to pay penalties for the defaults. It is also learnt that PSO had informed the government that because of repeated technical defaults, no bank was ready to open letters of credit to order future oil imports; therefore, it would be impossible to provide fuel on credit.

As it has been highlighted repeatedly the economic managers completely fail to understand gravity of the situation. While PSO is likely to get Rs10 billion to ease its financial difficulties, statement of caretaker Petroleum Minister Sohail Wajahat Siddique sounds most amusing.

He said on Friday that fuels (furnace oil and gas) would be provided to various sectors and consumers purely on the basis of their efficiency. If he goes by the rule he wishes to follow no state owned enterprise could get any fuel supply in the future.

Another point worth laughing that Siddique met with Water and Power Minister Dr Mussadik Malik and both of them agreed to work together to put in place a mechanism for bring down circular debt of PSO in a limited period of 45 to 50 days without recurrence.

Had this statement come from a politician one could have attributed it to ‘an attempt to attain political mileage’, but coming from Siddiqui shocks many. Siddiqui is Chairman of Board of Directors of PSO and he is fully aware the Company is being managed, in fact the entire energy chain.