Govt to set up Rs29bn rolling fund to help oil companies
By Khaleeq Kiani
ISLAMABAD, Nov 25: The government is considering establishing a Rs29-billion rolling fund through a consortium of banks to solve the cash flow problems of oil companies in order to keep them afloat on the back of rising financial claims and inter-corporate circular debts, it is learnt.
This is one of the measures the caretaker government is actively pursuing at the moment to melt down inter-corporate circular debt that has already crossed Rs180 billion due to Wapda’s over Rs70 billion arrears payable by the public sector and non-payment of over Rs30 billion subsidy to Wapda by the government and build-up of oil companies’ Rs41 billion price differential claims.
Informed sources told Dawn that a petroleum ministry’s proposal seeking Rs7 per litre increase in diesel has been shot down and a revised case for Rs5 per litre increase has been prepared for consideration by the Economic Coordination Committee (ECC) of the cabinet. Both these measures — increase in price and rolling fund — would be put in place before December 1. The ECC meeting is expected to be held on Wednesday and would be presided over by caretaker Prime Minister Mohammedmian Soomro, instead of caretaker Finance Minister Dr Salman Shah.
The sources said the Debt Management Cell of the finance ministry had held a number of meetings in recent days with the oil industry and banking sector to work out modalities of the rolling fund.
They said private oil companies had refused to borrow more on their own and show these interest payments in their balance sheets. Therefore, the government agreed to pick up the interest cost of such rolling funds on behalf of multinational oil firms.
The sources said that more than 60 per cent of the debt for this rolling fund was required for the state-run Pakistan State Oil. Therefore, a separate bailout package of Rs12 billion has been put in place for the PSO through the Habib Bank Limited at about 9.75 per cent interest rate.
Shell and Chevron Caltex have a 28 and nine per cent share respectively in the PDC and the government will absorb the interest cost of private companies.
The sources said the situation has reached a stage that budgetary projections were getting off the target due to inter-corporate debt and unless addressed head-on, the development programme could be at risk. In the short run, this could lead to disruption in oil supplies and much higher scale of loadshedding over the next few weeks. In the longer run, Pakistan’s budget deficit may go beyond five per cent of GDP during the current year against a budgetary target of four per cent.
The government had made an allocation of Rs87 billion in the 2007-08 budget as subsidies for the energy sector, which means that the caretaker government will need to raise more than Rs90 billion through price and tariff hike or pass on the legacy of even higher circular debt to a new elected government next year. The situation has worsened owing to a freeze on oil prices that developed Rs41 billion price differential claims.
Non-payment of public sector electricity bills has caused a cash shortfall of about Rs55 billion to Wapda’s corporate companies. Resultantly, its payables to independent power producers (IPPs) have surpassed Rs30 billion. It owes another Rs13 billion to the Pakistan State Oil and other fuel suppliers and around Rs8 billion or so to equipment suppliers. Wapda’s defaulters also include Fata and KESC.
As a chain effect, PSO is facing difficulties in making payments to oil refineries and other suppliers and has informed Wapda and the federal government that it would be constrained to stop fuel supplies. Likewise, since the government has not been able to liquidate petroleum differential claims, estimated to cross Rs41 billion by December 1, oil marketing companies have also informed the government about their inability to make payments to oil refineries due in the last week of the current month.
