ISLAMABAD, Feb 14: Notwithstanding a saving of $527 million to Pakistan, the falling international oil prices have caused a net loss of Rs620 million to Pakistan State Oil (PSO) during the last six months.
Background discussions and documents collected by Dawn suggest that inventory losses as a result of fall in oil prices had a cut down impact on the profits of local and foreign companies.
Managing director of PSO Tariq Kirmani confirmed to Dawn that his company has suffered losses like other OMCs but hoped that these would even-out in the long run.
He also confirmed that the government had not cleared Rs5 billion as price differential to PSO but said perhaps it would be paying the amount now.
In other words, the PSO’s profit declined by 150 per cent during the six-month period compared to a net profit of Rs1.335 billion in the corresponding period of last year, official sources told Dawn.
Notwithstanding these losses, the federal government has blocked an amount of Rs5 billion it was required to pay to PSO as price differential claim.
The dismal results of state-owned oil giant has sent shock waves to the federal government that was preparing it for privatisation, official sources said.
A recent meeting presided over by petroleum minister Usman Aminuddin was told that “PSO incurred a net loss of Rs620 million compared to a profit of Rs1.335 billion in the corresponding period last year.” This was attributed to inventory losses the PSO suffered as a result of continuous decline in the international prices.
Chairman of PSO board of directors M. Saleem informed the meeting that based on current distribution margin PSO will not be able to show good results as compared to last year’s profitability which will affect PSO’s image in the market and consequently its share value.
The PSO chairman was of the view that margins of the company needed to be increased to ensure at least 40 per cent return on equity — a benchmark generally believed to be reasonable return on equity by the oil industry.
It was also pointed out that the continuous dip in oil prices could completely wipe off the financial viability of all the oil marketing companies including Shell, Caltex and Total-Parco besides adversely affecting their share value and privatization of the PSO.
The availability of additional gas from new discoveries is being viewed as another factor for drastic cut in the consumption of fuel oil and ultimately depriving the PSO from its major market share.
Projecting a worst case scenario, the petroleum ministry wanted to increase OMC’s margin “to 3 per cent of the sale price across the board immediately and 3.5 per cent with effect from July 1, 2002.” It was also being contemplated “to increase dealers commission from 3 per cent to 3.5 per cent immediately and 4 per cent with effect from July 1, 2002.”
M. Afzal who is chairman of Oil and Gas Development Company Limited (OGDCL) is on record having told the petroleum minister that increase in margin was aimed at giving benefit to Shell and Caltex.
Sources close to Mr. Afzal said that PSO’s cash flow problem was mainly because of withholding of price differential claim amounting to Rs5 billion by the finance ministry. “If the government pays Rs5 billion to PSO it will increase their cash flow by Rs600 million per annum. Senior government officials requesting anonymity admit that if inventory losses were not taken into account the operating profit of OMCs was not much affected.
Mr Kirmani said that when the prices were on the rise during the last couple of years the government has been absorbing the difference but decline in international prices is passed on to the consumers straight away.
He said that continuous decline between September to December 2001 resulted in inventory losses to PSO and Shell but said it was not a matter of concern as he hoped that losses would even-out in the long run.
