Fuel shortages

Published April 19, 2022

IT is quite possible that we could be headed towards yet another fuel crisis as early as next month because of the severe cash crunch in the supply chain. For instance, the country’s largest energy supplier PSO is struggling to manage oil supplies, owing to its increasing liquidity crisis as international oil suppliers demand hard currency from the cash-strapped state-run entity for fresh supplies as well as higher premiums on delayed payments. The premium for high-speed diesel supplies are reported to be fluctuating between $8 and $13 per tonne in recent weeks, up from $2.5 or less a few months ago. With the balance sheet of the company in a state of shambles as power producers, gas utilities, and other public-sector concerns such as PIA hold back nearly Rs520bn they owe it, PSO is not in a position to pay approximately Rs265bn to its foreign LNG and petroleum product suppliers. Another sum of Rs42.5bn is payable to local refineries. Unless the government bails it out — and fast — the cash crunch will likely hamper its ability to arrange uninterrupted fuel supplies to meet the demand of different sectors of the economy.

Of late, oil marketing companies have also raised concerns over the delays in the payment of their price differential claims or subsidy that the previous government had promised to pick up when it froze the prices of petrol, diesel and other petroleum products for four months through June. The new set-up, which has decided to continue with the energy price freeze for now, despite an Ogra recommendation to raise the rates considerably in order to recover full import costs and exchange rate losses from consumers, is yet to earmark funds to pay the subsidy amount to the OMCs for the current month. In case the payment is not made in the next one week or so, private fuel suppliers, that have already cut down on their imports due to rising global oil prices, will not be in a position to bring cargoes in May. With cash flow constraints in the fuel supply chain aggravating due to stuck-up payments and rising international rates, energy price subsidies are becoming more and more unsustainable with each passing day. It may be a politically tough decision to make, but the new government must tackle the issue quickly. Fuel prices have to be raised given the fragile fiscal position of the country. The sooner it is done the better.

Published in Dawn, April 19th, 2022

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