The financial conditions of the Pakistan State Oil (PSO) are in dire straits as the company has to make a huge payment of Rs64 billion on maturing letter of credits (LCs) during the month of September.
An official source said that the Pakistan Electric Power Company (PEPCO) released Rs5.5 billion to the entity during the last three days out of its demanded immediate release of Rs17 billion to clear its overdue LC.
Evading default
The company has so far avoided default by getting cash from banks, but now banks are reluctant to provide financing to the entity, he said, adding that the company had to repay 10 billion on September 15 and Rs18 billion on September 16 on its maturing LCs. PSO has to pay off Rs64 billion in September alone, out of its outstanding dues of Rs120 billion to the fuel oil suppliers. PSO has avoided default for the last three years, but the upcoming payments in mid-September are posing a real threat to the operations of the company and if the government did not intervene timely, the company would default, the source said. The ministry of petroleum had asked ministry of finance and ministry of water and power to take urgent steps to protect PSO from default, which was imminent if timely payments were not made. The situation is difficult this time as banks are reluctant to bail out the company by giving credit considering the precarious situation of the power sector due to circular debt.
Future supplies
PSO supplies fuel oil worth Rs35 billion every month to the power sector out of which it receives only Rs15 billion, while the rest of Rs20 billion is included in its liabilities. It has total receivables of Rs151.8 billion and has overdue amount of Rs58.5 billion to the fuel oil suppliers. To overcome the crisis in future, PSO had sent a letter to the managing director PEPCO with the message that in future fuel oil supplies would be made only if financing was provided on the basis on local LC from banks. The company plans to provide fuel only if the financing was provided from the banks as at present PEPCO is in the grip of a severe financial crisis that has engulfed the energy sector.
