Longstanding circular debts, which have piled up to the “high point of” Rs179 billion, have made financial situation of Pakistan State Oil (PSO) “untenable”. “Now with total receivables standing at the high point of Rs179 billion, PSO’s financial situation has become untenable,” said state-owned oil supplier in a statement.
It said huge problem caused by non-payments from power sector and airline had crippled PSO’s liquidity position and may lead to an inevitable breakdown in supply chain resulting in fuel shortages in the country.
Despite repeated non-payments from power sector, PSO has struggled to supply fuel worth an average of Rs32 billion to power entities on a monthly basis. Despite this, the power sector namely HUBCO, WAPDA and KAPCO have continuously defaulted on their payment obligations to PSO. An average shortfall of Rs10 billion per month has been recorded in payments from the power sector for the past 6 months, with Rs5.2 billion being disbursed to PSO in the month of November.
“A similar situation is occurring with the continuous default by PIA,” the company said adding that national carrier had been violating its agreement with PSO by failing to make regular payments for the fuel it receives.
Keeping in view national interest, PSO had supported PIA in every possible way including borrowing from banks and accommodating Airline’s requests for deferred payments to ensure uninterrupted fuel supply to the airline.
As of today, PIA owes PSO Rs4.3 billion. And while their payments had become irregular, the carrier had increased its daily average fuel uplift from Rs60 million to Rs70 million worth of product. National carrier had promised to pay back Rs1.0 billion of its outstanding dues by end of October. However; they not only violated this commitment, they recently stopped their daily fuel payments to PSO as well. “The situation has now reached a critical level; continuous non-payment by these entities has left PSO cash-strapped and unable to meet its payment obligations to both local and international suppliers,” PSO said.
In case immediate payments are not received by defaulting entities, be it power sector or the national carrier, import of future fuel cargoes would have to be deferred as the company had exhausted its financing resources.
With domestic production of fuel oil already in doldrums, any reduction in import would result in fuel shortages, increased load shedding and disruption of flight schedules nation wide, PSO warned. If faced with this situation PSO would be left with no choice but to discontinue supplies to any defaulting customer until its outstanding receivables are recovered. PSO said given the critical level of circular debt and mounting receivables, living up to the credo of “PSO never stops” was a challenge on its own.
