ISLAMABAD: Pakistan State Oil, the country’s largest fuel supplier, on Thursday reported to the prime minister that it had defaulted on domestic and international payments and warned of a complete dry-out in a few weeks.
“We expect a complete dryout in or around second week of May on current total supply pattern of 16,000 tons per day of both HSFO and LSFO,” said PSO managing director Naeem Yahya Mir to secretary of petroleum and natural resources who presented the letter to caretaker Prime Minister Mir Hazar Khan Khoso.
“Presently we have already defaulted on local and LC’s (letter of credit) payments amounting to Rs11 billion,” the letter said.
At a meeting, presided over by the caretaker prime minister, the ministry of petroleum explained that further fuel supplies to power sector could not be provided on credit because of non-reliability of Wapda companies.
Fuel could be supplied to the power sector only on a firm guarantee of the finance ministry that timely payments would be made, the prime minister was informed.
The petroleum ministry informed the prime minister that PSO’s receivables from power sector had increased to Rs141bn while receivables of gas companies now stand at Rs175bn. This has created severe liquidity problems for the oil and gas sector.
A PSO spokesperson, Maryam Shah, confirmed that PSO had committed technical defaults for more than five times in recent days and the fuel supplier had to pay penalties for the defaults.
The PSO had also informed the government that because of repeated technical defaults, no bank was ready to open letters of credit to order future oil imports, therefore, it would be impossible to provide fuel on credit.
The caretaker prime minister constituted a four-member committee, led by his principal secretary, and comprising secretaries of petroleum, water and power and finance, to hold consultations on day-to-day basis and submit a report within three days so that decisions could be made to avoid disruption in supply chain and increase in load-shedding as temperatures go up.
The PSO chief said if financial issues were not addressed on an urgent basis, it could “result in total collapse of supply chain, both from financial and product availability perspective.
He lamented that despite its request on March 28, the company was surprised that no endorsement of tenders had been conveyed to the company to order fresh imports.
“Any further delay will definitely result in a dry-out situation in the country when present stocks will exhaust and cargoes will not arrive timely.”
With current stocks enough to meet ongoing reduced supplies until first of May, it would be difficult to arrange additional supplies for higher power generation demand in peak summer months of May to September.
The PSO attributed the shortage situation to non-disbursement of Rs47bn committed in early March. Because of cash constraints, the PSO said “it could not order further oil cargoes.” Default is already in place and “consequential defaults might result in banks calling the borrowing lines and refusal to open further LCs for cargoes already awarded.”
The PSO chief said that “please note that PSO will not be responsible for direct and indirect consequences of product un-availability and supply chain break out.”
Giving a break-up of receivables, the PSO said an amount of Rs48 bn was outstanding against Wapda, Rs56bn against Hubco, Rs11 bn against Kapco and Rs11.5bn against KESC among top defaulters.
The company said its outstanding payments to Kuwait Petroleum and other fuel suppliers stood at Rs73bn on April 4, followed by Rs21bn to Parco and Rs10bn to Attock Oil.