Amount vital to pay off LCs: PSO seeks Rs 50 billion urgent payment

The Pakistan State Oil (PSO) has requested the government to provide it at least Rs 50 billion, on war footing, so as to enable it to retire international Letters of Credit (LCs), otherwise it would not be able to import oil.
Sources privy to the deliberations about the nature of serious circular debt issue told this correspondent: "We time and gain have written letters to the Ministry of Finance, Ministry of Water & Power and Ministry of Petroleum to direct the power sector for releasing payments of PSO, which at present has touched the tune of Rs 155 billion."
The company would not be able to import oil in October if the power sector did not pay outstanding dues as the company has to fulfil its international commitments, sources added. "If the government fails to release at least Rs 50 billion, requested by PSO, immediately, which it has to pay to international oil suppliers, a serious fuel shortage is inevitable", they said.
Sources said that in case of non-payment of outstanding amounts of international suppliers, there would be a gap in demand and supply while rescheduling fuel supply after payment would take three months, that could possibly lead to severe fuel and energy crisis.
An official of the company said that electricity prices in the country have increased by almost 18 percent, but the power generation companies are reluctant to pay the outstanding dues of PSO. "Where they are spending the money collecting from consumers" he questioned.
As the government is yet to make an urgent payment to the oil marketing company, total receivables of the company have swelled to Rs 155 billion. The company time and again requested the Ministry of Finance for the provision of Rs 50 billion out of the total outstanding dues. Despite severe financial constraints, PSO struggles to live up to its commitment to ensure uninterrupted supplies to the entire country, especially the power sector. However, the power sector owes PSO an aggregate amount of approximately Rs 131 billion, of which HUBCO owes PSO Rs 67 billion, whereas KAPCO and WAPDA owe Rs 35 billion and Rs 29 billion respectively.
On the other hand, PSO''s total payables to the local refineries have touched Rs 71.18 billion on September 26, of which Rs 31.35 billion to Pak-Arab Refinery (PARCO), Rs 8.5 billion to Pakistan Refinery Limited (PRL), Rs 9.16 billion to National Refinery Limited (NRL), Rs 17.24 billion to Attock Oil Refinery Limited (ARL), Rs 4.28 billion to Bosicor and Rs 0.53 billions to others. Including the LC payment of Rs 90.57 billion the total liabilities of the company have crossed Rs 161 billion mark, which last week was standing at Rs 157.095 billion.
"With total receivables reaching an alarming figure of Rs 155 billion the financial situation of Pakistan State Oil (PSO) has become extremely precarious. The huge outstanding is adversely affecting PSO''s liquidity and it may lead to inevitable breakdown in the supply chain, resulting in fuel shortages in the country, which would lead PSO to default," they added.
While the national energy company is supplying an average of Rs 32 billion worth fuel to the power sector on monthly basis, the power sector continuously defaults on its payment obligations to PSO. This month the power sector paid only Rs 8.5 billion as payment for the fuel oil supplied to PSO. In the recent past, the company has sent out requests for payments to the power entities including HUBCO, KAPCO and WAPDA however no substantial payment has been released in September 2011.
The continuous non-payment of power sector has made PSO severely cash-strapped. As a result, the company has defaulted on local refineries'' payments this month, which has adversely affected the local production. Furthermore, the company is constantly struggling to meet the international payment obligations, as any default on the part of PSO to its international suppliers would disrupt supplies and the resumption of which would take months.
In case timely payments are not made by the power sector in the near future, fuel cargoes will have to be deferred as PSO has exhausted its resources for financing future product supplies. With domestic production of fuel oil already in doldrums, a reduction in import would result in shortage of fuel that would eventually lead to a massive load shedding.
Pakistan State Oil, as the largest energy company in the country with 75 percent market share, is cognisant of its responsibilities and it continues to try and meet the daunting energy needs of the nation in a responsible and timely manner. However, giving the critical level of the circular debt and mounting receivables, living up to the credo of "PSO never stops" is a challenge on its own.