ISLAMABAD: An urgently convened meeting of the Economic Coordination Committee (ECC) of the Cabinet has approved Rs 20 billion as supplementary grant for PSO to save it from being default on international payments and directed Finance Division and Federal Board of Revenue (FBR) to come up with a proposal for mobilizing Rs. 30 billion through taxes, within a week.
On Sunday the meeting presided over by the Finance Minister Miftah Ismail was submitted a summary by Ministry of Energy (Petroleum Division) on SOS call for funds for PSO to meet international contractual payments during 1-14 August, 2022.
Sources said that the ECC was informed that PSO’s receivables have increased to Rs. 608 billion as of 28.07.2022. A major contributing factor to this is LNG supply which has added a cash shortfall of Rs 213 billion since July 1, 2021, making the total LNG receivables to Rs. 339 billion. On the other hand SNGPL is constrained by delayed payments by Central Power Purchasing Agency (CPPAG) and its receivables have increased to Rs 113 billion from Rs 43 billion on 1st January 2022.
The direct receivables of PSO from CPPAG stood at Rs.182 billion, out of which Rs.16 billion have accumulated since 1st July 2022. Delay in payments to PSO by respective entities has sapped the liquidity of PSO. As a result of this, the company has not been able to deposit Rs. 80.7 billion to government NIDA account for onward transmission to Kuwait Petroleum Cooperation (KPC), which is a contractual obligation for PSOCL/ GOP. In addition, the PSO has not been able to deposit Rs 16 billion to government under ITFC facility. These payments to government have been deferred by PSO so that it does not default on its international contractual obligations.
The meeting was further informed that decline of sales of HSD and MS for PSO by 28% and 32%, respectively, had an impact of Rs. 69 billion on collections, whereas devaluation of the Rs against US$ (17.8% in July 2022) has resulted in increased cost of procurement of these products by PSO by Rs.63 billion.
The receivables from government against this exchange loss stood at Rs 54.6 billion and although PSO in spite of these challenges has met its contractual international payments in July, 2022 but from 1st August, this will not be possible and consequently there will be disruption of the national oil and gas supply chain in LNG and petroleum products.
PSO has to make an international payment of Rs.267 billion in the first fortnight of August 2022. The forecasted collection of PSO during the first fortnight of August 2022 is Rs. 157 billion resulting in a net deficit of Rs 100 billion (Deficit of Rs. 80 billion 1-14 August 2022 and Rs. 20 billion 15-28 August 2022).
Therefore, in order to ensure that PSO does not default on international payments and that the oil and gas national supply chain is not disrupted, it is proposed that: (a) PSO receivables from government against exchange loss of Rs.54.6 billion may be released immediately;(b) for the remaining amount of Rs 54.4 billion, direction may be issued t the NBP and other banks to extend the credit limits for PSO on an emergency basis;(c) power division may be directed to make immediate payments of the current outstanding amount of Rs 12.8 billion against furnace oil and at least Rs 20 billion against RLNG supplies by 2nd August.
The meeting, for the smooth continuity of oil and gas national supply chain and avoid PSO from being default on international payments, has decided to clear the outstanding payments accumulated during the period of pervious government and approved an amount of Rs 30 billion as supplementary grant for PSO receivables.
The meeting also decided that Power Division would make immediate payments of the current outstanding amounts of Rs 20 billion by 1st August, 2022 and Rs. 12.8 billion by 4th August, 2022. The ECC also directed Finance Division and FBR to submit proposal for generation of Rs. 30 billion through taxes, within a week.
On another summary of Petroleum Division on price mechanism of petroleum products, the ECC accepted the proposal to use the average of exchange rate for the relevant period rather than the exchange rate of the last day for the current as well as future price determinations.
Copyright Business Recorder, 2022