PSO seeks over Rs100bn to ‘avoid default’


ISLAMABAD: Pakistan State Oil (PSO) has sent an SOS to the government, seeking over Rs 100 billion to avoid default on international obligations, official sources told Business Recorder.

The Petroleum Division, in its summary, to the ECC has stated that amid the Covid-19 pandemic, various economic sectors of all the countries have been impacted severely. Accordingly, the oil industry is being affected badly and a glut has emerged due to reduction in country-wide demand for petroleum products.

PSO’s liquidity position was already critical due to long outstanding receivables from the power sector, PIA, Ministry of Finance and SNGPL which have accumulated to Rs 370.9 billion. However, due to the pandemic, PSO’s daily cash collection from its white oil business has drastically reduced by more than 55 per cent resulting in a severe liquidity crunch. Sale of RFO had already been minimized because of the shift of power sector to alternate fuel. Therefore, PSO has already gone past payment due dates on local refineries and is also on the verge of default on various international payments.

The critical liquidity position of PSO can trigger a potential fuel crisis in the country. Petroleum Division is striving to improve PSO’s financial health and SNGPL has already been directed to clear PSO’s debt through bank borrowings.

As regard exchange losses incurred by PSO on FE-25 loans booked on the instructions of Ministry of Finance, Petroleum Division had taken up the matter with ECC of the Cabinet in January 2020, which was considered by ECC with the following directions: (i) Finance Division to consider allocation of requisite amount in favour of PSO from the next financial year and; (ii) Finance Secretary in consultation with Secretary Petroleum Division to explore the possibility of clearance of some of the claims during the financial year.

The Petroleum Division argues that SNGPL is to be paid a subsidy for supply of LNG released to the fertilizer sector in calendar year 2019 and the ongoing subsidized supply to five export oriented sectors. At this time, the total subsidy claim that is unpaid is Rs 14 billion.

The sources further stated that the Central Power Purchasing Agency - Guaranteed (CPPA-G) released payments to Genco-III on account of PSO’s outstanding receivables. However, Genco-III did not release any payment to PSO and invested Rs 32 billion in Nandipur while Rs 19 billion had been retained on account of operational losses incurred by Genco-III.

Presently, PSO is facing severe cash flow constraints due to Covid-19 pandemic and requires Rs 81.3 billion up to April 30, 2020 to retire international L/Cs to the suppliers of POL products and LNG.

The details are as follows: LNG( QG) Rs 4.9 billion (March 31-April 20); (ii) Mogas, Rs 4.5(April 1-April 20); (iii) HSD(KPC), Rs 3.6 billion (April 6- April 20; (iv) LNG( QG) Rs 4.9 billion( April 6-April 20); (v) LNG(QG) Rs 4.9( April 9-April 20); (vi) Mogas, Rs 3.4 billion( April 10- April 20) and; (vii) various Rs 55.1 billion (April 11-April 30).

The Petroleum Division maintains that to strengthen PSO’s liquidity position and to maintain a smooth supply chain of petroleum products in the country, it has repeatedly sought the release of significant payment to PSO but to no avail. However, in case of default on international payments, it will be the shared responsibility of all relevant Ministries/Divisions/organizations.

In order to avoid international default and to avert the impending energy supply chain crisis in the country, the following steps have been proposed: (i) though ECC has directed Finance Division to consider allocation of requisite amount, in favour of PSO from next financial year, however, keeping in view the current financial constraints of PSO and to avoid any fuel shortages in the country, Rs 29.7 billion may be released to PSO immediately by Ministry of Finance on account of exchange losses incurred by PSO on FE-25 loans booked on the instructions of Ministry of Finance. This is already approved by the ECC; (ii) subsidy for fertilizer and export sectors totaling Rs 14 billion may be released immediately; (iii) at least Rs 60 billion may immediately be arranged for PSO by Power Division and; (iv) PIA may also be directed to release at least Rs 5 billion out of Rs 19.5 billion immediately.