ISLAMABAD: With fuel stocks depleting to a critical level and Pakistan State Oil (PSO) facing five defaults on international payments, the country may be heading towards extended blackouts during Ramazan.

Senior government officials told Dawn that PSO’s receivables had exceeded Rs200 billion and no fresh payments could be made to the country’s largest oil supplier over the next three days of the current fiscal year because power sector subsidies had already surpassed the budgeted amount.

Fuel stocks at critical level

They said fuel stocks at various power stations have plummeted to less than three days of requirement and supplies were drying up because banks were not ready to open letters of credit for PSO for fresh imports.

At a meeting of top officials of the ministries of finance, petroleum and water and power and PSO this week, Minister for Defence and Water and Power Khwaja Asif conveyed Prime Minister Nawaz Sharif’s desire to ensure minimum loadshedding during Ramazan. And he asked representatives of the petroleum sector to ensure supply of 22,000 tons of furnace oil on credit and called for preparing a plan for its implementation by petroleum, finance and power companies.

The PSO submitted a summary and said that its credit and supply lines were choked. To ease the situation, it proposed that the finance ministry should take steps for the opening of additional letters of credit (LCs).

Sources said PSO’s receivables from power companies had risen to over Rs200bn. An amount of Rs22bn is required on an emergency basis to clear previous LCs for fuel the power companies had consumed two months ago.

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Without fresh payments, PSO will not be in a position to open fresh LCs and order imports for Ramazan on credit.

The PSO’s summary was explained to the ministries of water and power and finance for an immediate bailout package.

The sources said the power companies were paying only eight per cent of their total collection while some subsidy payments by the finance ministry kept the PSO’s wheels moving. But since subsidies have already exhausted, fresh payments will only be possible after July 1 with the start of the new financial year.

The finance ministry released Rs20bn to the power companies a couple of days ago for onward payment to PSO, but only Rs10bn reached the fuel supplier.

Editorial: Ramazan prices

The officials said that even if payments were made to PSO after July 1, it would take more than 15 days to open LCs, order fresh imports and then ensure delivery of furnace oil at port given the fact that PSO had already lost its credibility in the international market.

“In fact, PSO is on the verge of collapse and if this happens the consequences will be serious,” said an official, adding that the value of PSO’s total assets was not more than Rs20bn, but receivables were more than Rs200bn.

Controlling more than 65 per cent of the market share, the entire fuel supply network and product chain could collapse and lead to an increase in blackout periods.

Published in Dawn, June 28th, 2014