The market observers foresee the circular debt in the energy sector playing a key role in defining the upcoming fiscal budget (FY14) as the lingering credit has ballooned to an alarming Rs 537 billion as of April-13.
This, the analysts say, is compared to Rs 144 billion in 2008, implying an increase of 273 percent.
“As per our expectations, partial resolution of circular debt in the budget would improve the liquidity situation of OMC sector,” viewed M. Irfan Saeed, an analyst at InvestCap Research.
Thus, he said, lower the financial charges which have been pulling down OMCs bottomlines.
Being part of the highest revenue contributor (indirect taxes), PDL on petroleum products is an essential element contributing to the government’s source of revenue, said the analyst.
“Considering declining POL volumetric sales and actual PDL collection meeting target for FY13 still being a question mark, we expect the reinforcement of PDL in its present form with a range bound of Rs3-14/litre on various petroleum products and thus status quo to prevail,” said Saeed.
However, he said if international oil prices remained flat or fall from current levels as per expectation, one could not rule out the possibility of the government raising PDL by Rs3 to 5 per litre translating into a PDL target of Rs.150-160 billion in the upcoming budget.
In budget FY13, the government had set a dividend target of Rs450 million, dividend of Rs7.15/share, from PSO. “We expect 70 percent of the target (dividend of Rs5.0/share) to be achieved in FY13,” Saeed said.
Moreover, the analyst also expects the government to set the dividend target of Rs630mn (Rs10/share) in the upcoming budget for FY14 led by partial settlement of circular debt.
In the upcoming budget, the extent of resolution of circular debt is expected to define the intensity of positivity that the budget fetches for the OMC sector.
“Overall, we expect that the upcoming budget impact on OMC sector is neutral to positive,” said the analyst.
