KARACHI – Whereas economic managers seem overwhelmed by the current improvement in external accounts, the country’s ailing economy is still haunted by the lingering circular debt issue that, the analysts believe, might debilitate favourable impacts of the $99 million current account surplus. The present PPP-led coalition government is breathing hard under immense pressure from the International Monetary Fund (IMF), while surging oil prices in international market requires rulers to pass on the price hike to consumers through a withdrawal of subsidies from the energy sector.
According to reports, the government has to clear around Rs 101 billion of Hub Power Company Limited (HUBCO) on account of electricity bills against Water and Power Development Authority (WAPDA).
Showing a domino effect, WADPDA’s inability to repay HUBCO’s dues has triggered the latter to default on around Rs 90 billion debts of the state-run Pakistan State Oil (PSO). “Despite continued dialogue with the government, it is disappointing to report that there has been no improvement in the situation,” HUBCO told its shareholders at the Karachi Stock Exchange (KSE). Secured by the Government’s sovereign guarantee, the Rs 101 billion outstanding dues involve Rs 94 billion as classified dues that need to be paid immediately. HUBCO supplied 5,801GWh to WAPDA during the said period.
“This (default on PSO debt) has resulted in an irregular supply of fuel which has affected plant operations,” that, the company said, had been operated during July-March FY11 at an average load factor and average complex availability (ACA) of 73.5 percent and 86.4 percent respectively.
Furthermore, local oil marketing giants like Shell Pakistan Limited also complain about the continued delay in recovery of government refunds of indirect taxes and Price Differential Claims (PDCs).
“(The) government receivables are now going beyond Rs 6.0 billion and are spurring a continuous high financing charge on the company,” Shell Pakistan Chairman Zaiviji Ismail bin Abdullah complained in a notice to the company’s shareholders at local bourses. He said that, since the inception of these receivables over the last few years, delays in settlement had cost the company over Rs 3.0 billion in the form of interest costs. “Your management is vigorously following up with concerned government authorities for their early settlement,” he informed.
The Shell chairman stressed that it was imperative for the government to urgently address the unfavourable impacts of a reduction in oil marketing company’s margins and delays in the settlement of government receivables.
Ismail stated that margins for petrol and diesel in Pakistan were one of the lowest in the region and have seen a continuous reduction from Islamabad in the recent periods, at a time, when oil prices and all costs have been on rise. The Shell chief said that current level of margins for local sa1es did not provide appropriate returns to cover the cost of operations and, particularly, the high cost of investment in required stock and assets.
“This is not a sustainable situation for the company and it needs to be urgently addressed by the government,” he maintained.
Economic observers have warned that soaring oil prices in the international market and an ingraining power crisis were looming large in the country to weaken the government’s achievement on the current account front. Analysts are concerned that, while global fuel prices were staggering on the higher side, the government was yet to resolve the anti-growth power crisis. “Power and oil crises should be resolved immediately,” suggested Muzammil Aslam of JS Securities.
