PAKISTAN’S largest company by revenue and a strategic asset — Pakistan State Oil — has been without a full time manager for almost two years now. While the company crossed the Rs1.4trn-revenue mark in the financial year ending June 30 due to the settlement of circular debt and higher power generation, its market share has been on a continuous decline.

In an official representation, Prime Minister Nawaz Sharif has been alerted to the worsening affairs of the largest public sector enterprise with regards to its its core business operations and market share, rather than being impressed by the intelligent preparation of its balance sheet.

PSO’s sales growth and market share during July-December 2012 (2HCY12) and the same period of 2013 (2HCY13) suggest a declining trend.

In 1HCY12, PSO’s overall sales grew 8.1pc against the industry’s growth of 11.2pc. The company lost its market share by 1.8pc, from 64.7pc at end-2012 to 62.9pc in end-2013.

Its sales of high speed diesel (HSD) were down 1.4pc when compared with the industry’s growth of 7pc. As a result, its market share dropped from 58.4pc to in the period under review. The prime reason for this loss was attributed to inefficiency, mismanagement and under-utilisation of the company`s infrastructure.

In the motor gasoline (petrol) segment, the company lost market footing as well. Against the industry’s growth of 19.1pc, PSO’s increase was only 15pc. As a result, its market share dropped from 51.3pc in July-December 2012 to 49.6pc in July-December 2013.

In white oil, the industry grew by 9.7pc, but PSO’s sales rose by only 3.1pc. As a result, its market share dropped from 56.5pc in 1HCY12 to 53.1pc in 1HCY13. Because of resolution of circular debt at the time, PSO was able to maintain its market share in black oil (fuel oil) at 75pc.

The drop in overall and white oil market share comes despite the good infrastructure, extensive marketing network and heavy discounts that are available to the company.

In overall profit, a sizable amount of the profit before-tax was realised due to delayed payment mark-up received from various customers and included in other income such as the profit earned on Pakistan Investment Bonds. These amounts have nothing to do with the core performance of PSO.

At the same time, the company also owes billions of rupees to refineries, apart from late payment charges. However, as an ethical company, PSO should have paid refineries at least the mark-up it owes due to the circular debt, but the interest received from the power sector has been shown as income and the money owed to refineries was not mentioned at all.

Any sensible management would have cleared the liability of the refineries first to reduce the profit to an acceptable level and saved on corporate tax, as profits were subject to 35pc tax in addition to higher tax on workers participation funds (WPPF).

Almost same is the situation with sales and overall volumes during 2013-14. Against the overall increase of 8.8pc in the market, PSO’s volumes rose by 4.6pc. The company lost market share by 2.5pc, from 64.3pc in 2012-13 to 61.8pc in 2013-14.

Despite the reopening of six depots under inland freight equalisation margin (IFEM) — which are an absolute advantage for PSO — the company’s performance remained dismal in the white oil segment. Against the white oil industry’s growth of 5.4pc, PSO’s sales declined by 0.1pc. It, thereby, lost market share by 2.9pc, from 55.7pc to 52.8pc.

Against the industry’s growth of 15.3pc, PSO’s sales of petrol went up by 10.5pc, shaving its market share by 2.1pc. The company also got a major hit in diesel volumes, as sales went down by 5.6pc against the industry’s growth of 1pc. It’s market share dropped by 3.7pc, from 57.2pc to 53.5pc.

In black oil, despite the settlement of the complete circular debt last year by the newly elected government, the company did not perform well and lost market share by 2.7pc from 75.7pc to 72.8pc.

This is for the first time in many years that PSO lost market share in almost all products despite giving a record high Rs1.7bn discount to 41 mega dealers and spending huge amounts on its lube revival plan. It has reported an increase in trade debts to Rs98.8bn and raised its short-term borrowings by Rs75bn, quite alarming for its financial health.

Published in Dawn, Economic & Business, September 22nd, 2014