Petrol shortage looms as PSO faces default

[Lahore_Real_Estate]

ISLAMABAD: The country may face a shortage of major petroleum products with the largest supplier, Pakistan State Oil, heading towards a default on international payments because of a severe liquidity crunch.

According to an official of the petroleum ministry, such a situation might adversely affect power generation and road, rail and air transport.

He said the matter had been taken up with the finance ministry and the Pakistan Electric Power Company (Pepco) may make an urgent payment of Rs12 billion to the PSO. But that would not solve the problem, the official said.

Sources told Dawn on Thursday that the PSO management had warned the government that it might have to declare ‘force majeure’ on further oil imports and payment of dues to local and foreign suppliers on Friday.

“Letters of credit (LCs) worth about Rs16 billion are becoming due to foreign suppliers on Friday through next Wednesday,” an official said.

The outstanding payments to foreign suppliers have accumulated to Rs30 billion. “An LC of Rs4 billion ($47 million) is due on Friday, followed by Rs4 billion each on Monday, Tuesday and Wednesday,” the sources said.

“We are considering cancelling oil imports worth around Rs19 billion that are in the pipeline. A decision will be taken on Friday after consultations with the government,” a PSO official said.

“The situation is very bad. It has never been like this. Receivables now stand at the highest-ever level of Rs149 billion,” he said, adding that a number of SOS messages sent to power companies and the government had gone unheeded.

The sources said the country was already facing a shortage of high speed diesel, furnace oil, jet fuel and motor spirit.

Imports of the four products for which tenders have been issued or bids accepted will have to be cancelled because of cash constraints.

At the heart of the crisis is the energy sector’s circular debt under which PSO receivables have surged to a record level.

The power sector is holding up about Rs141.3 billion -- Rs62.6 billion by Hubco, Rs31.5 billion by Kot Addu Power Company (Kapco) and Rs47 billion by Pepco.

As a result, the PSO has run short of cash and is not in a position to pay over Rs90 billion to domestic refineries and that is already resulting in the drying up of various petroleum outlets in Azad Kashmir, Gilgit-Baltistan and selected stations in big cities.

PSO’s Managing Director Irfan K. Qureshi wrote ‘urgent letters’ on Thursday to the ministries of finance, water and power, petroleum and natural resources and the power companies about the precarious situation of oil supplies, warning them of a crisis in the coming days, an official said.

“In the wake of liquidity issues, PSO is considering deferment or cancellation of furnace oil tender opened on Sept 15 for the period October-November, 2010,” the letter said.

“In case of non-payments, PSO will be forced to discontinue credit supplies to these private entities (Hubco and Kapco) with effect from Sept 17,” it added.

The government has also been told that PSO has exhausted its resources for financing future product supplies from refineries and imports as it has not been able to make timely payments to the refineries because of non-payment from the power sector, which has also led to receipt of limited supplies from these resources.

As of Thursday, the liabilities on account of LC payments to the Kuwait Petroleum Company and other furnace oil suppliers stood at Rs30 billion, a source said. Besides, Rs37 billion is payable to Parco, Rs14 billion to Pakistan Refinery, Rs9.5 billion to National Refinery, Rs25 billion to Attock Refinery and Rs4.7 billion to Bosicor Refinery.

The circular debt has been taking a heavy toll on the energy sector mainly because of non-payment of provincial electricity dues to power companies. The circular debt stands at Rs250 billion.