KARACHI, Feb 14: Consortium of six banks would begin disbursement of Rs15 billion to Pakistan State Oil (PSO), raised by them for paying price differential claim (PDC) to the company, following receipt of the government’s guarantee, expected at the meeting of the PSO Board scheduled for Friday.

The six banks, which have contributed Rs2.5 billion each, include Standard Chartered, NBP, MCB, UBL, Bank Alfalah and the Allied Bank, a senior banker at one of the consortium members said on condition of anonymity. He said that the agreement had been signed two weeks ago.

The sum of Rs15bn would be second tranche of the Rs40 billion that was approved by the government as a loan to itself for payment to the stock market listed oil marketing companies (OMCs) in settlement of price differential claim (PDC).

The first tranche of Rs18 billion was disbursed to PSO and Shell in December last year. The second tranche has been raised for payment to PSO only.

Analyst Farhan Mahmood stated that the disbursement would serve to improve the cash flow position of OMCs, enabling them to wriggle out of working capital constraints. He observed that over the last few months OMCs had been pushed into a tight corner owing to non-payment of PDC.

The figure had mounted to staggering heights as the impact of rising oil prices had not been passed on to local consumers since February 2007.

Owing to sharp increase of 52 per cent in international oil prices since beginning of 2007, the government was bearing huge subsidies on various products. Subsidy on diesel accounted for a major chunk in overall oil subsidy. Diesel has 43 per cent weight in total oil product consumption in the country.

“In July 2007, the government was giving Rs5.4 per litre subsidy on diesel, which has now increased to Rs19.2 per litre,” analysts calculate. Accordingly, the overall oil subsidy now stood at Rs52 billion, against the full year FY08 government target of Rs15 billion.

Analysts said that rising international oil prices were both a bane and a boon for the OMCs. On the one hand they increased PDCs, while on the other they benefit OMCs with handsome inventory gains.