ISLAMABAD: Amid current financial challenges, the state-run Pakistan State Oil (PSO) has expressed its inability to serve only the loss-making airports if the profitable fuelling facility at Karachi’s Jinnah International Airport is auctioned out to a private supplier, with PSO officials asking another state-owned entity, the Civil Aviation Authority, to adopt a uniform policy for all airports across the country.
The PSO has already moved the competition appellate tribunal against the Competition Commission of Pakistan’s (CCP) direction to tender the existing fuel farm, Eastern Joint Hydrant Depot, at Karachi airport and notices had been issued to the CAA and other respondents on the matter, the country’s largest fuel supplier reminded the federal government.
In a communication to the petroleum secretary, PSO Managing Director and Chief Executive Officer Syed Mohammad Taha said the company maintained jet fuel refuelling facilities at 10 airports across Pakistan as per international standards and had been investing millions of rupees every year to upgrade and maintain these facilities for increasing productivity and efficiency.
However, the state-owned supplier warned, “PSO being a public sector entity cannot agree to operate at loss-making airports only, while we are being removed from a major airport on the pretext of promoting competition.”
It recalled that when CAA had issued a tender for establishment of jet fuel refuelling facility at Skardu airport, PSO explained that flights for Skardu got two-way fuel from Islamabad airport and due to the high road transportation cost, fuel price at Skardu airport would be very high, discouraging airlines to refuel from Skardu. Yet in the national interest, PSO participated in the tender and agreed to establish a mobile facility for a temporary period to support the government vision to promote tourism, it explained.
The CEO also reminded the federal government that a few years back, a private troubled entity, Hascol Petroleum, had approached the CCP complaining that the CAA had not been allowing them to establish fuel farm at Karachi airport for jet fuel business. Subsequently, the CCP directed the CAA to tender the existing Fuel Farm i.e. Eastern Joint Hydrant Depot (EJHD), a joint venture of PSO, Shell Pakistan and Total Pakistan for past six decades.
PSO later challenged the CCP direction before the appellate tribunal, which is pending adjudication.
Regardless of PSO’s continuous engagement with the CAA and explaining that fuel farm can be leased through “direct allotment” as per CAA Policy 2019, but the CAA in violation of its own policy issued a letter of interest (LOIs) for operation and management of EJHD, Karachi airport, according to the PSO. Strangely enough, it noted, the CAA also claimed the ownership of Hydrant Refuelling System, which was purchased by PSO and its partners in the joint venture through 1994 agreement of sales.
Three other airports
The PSO chief pointed out that the CAA was also planning to offer loss-making Sukkur, Nawabshah and old Gwadar airports for takeover and establishment of jet fuel facilities under ‘direct contracting’, without considering the option of tender. He complained that the CAA’s current approach was not public-sector friendly, as it was asking PSO to operate at all loss-making airports and “at the same time evicting PSO from Karachi airport which is to some extent a viable business option”.
PSO officials said the government had been approached to not only look into the matter but also ask the CAA to adopt a uniform policy for all airports whether it seeks to lease out jet fuel refuelling facilities at all airports through tender or through direct allotment to PSO.
“It is unfair to expect PSO to feed smaller airports at a loss while major airports are offered for competition which should be on overall basis instead of pushing for selective competition,” an official said.
When the CAA was approached by Dawn for comment, the officials said they could not respond to questions before Wednesday (due to two-day public holiday for Ashura on August 8 and 9).
PSO has been raising SOS calls to avoid international default as delay in payments by different entities had exhausted its liquidity. As a result, the company has not been able to deposit Rs81bn to the federal government’s local currency account for onward transmission to Kuwait Petroleum Cooperation (KPC) under a contractual obligation. The government had to order special arrangements for payment of Rs32bn to meet the obligation.
Just last week, the federal government was informed that PSO’s receivables had touched Rs608 billion as of July 28, including Rs340bn from Sui Northern Gas Pipelines Limited (SNGPL). A major contributing factor was the LNG supply that added a cash shortfall of Rs213bn since July 1, 2021. SNGPL, on its part, had been constrained by delayed payments by Central Power Purchasing Agency (CPPA) whose receivables jumped to Rs113bn from Rs43bn since January 1, 2022. CPPA had another Rs182bn direct payables to PSO on account of fuel supplies, including Rs16bn accumulated since July 1, 2022.
Moreover, PSO had not been able to deposit Rs16bn to the federal government against an integrated-term finance certificate (ITFC) facility, which has been deferred to avoid PSO’s international contractual obligations. There has been a decline of sales of high-speed diesel (HSD) and petrol for PSO by 28pc and 32pc respectively, having an impact of Rs69bn on collections, while about 17.8pc devaluation of rupee against dollar in July alone had resulted in increased cost of procurement of these products by PSO by Rs63bn. It was reported that PSO had foreign exchange loss of about Rs85bn over the years of which Rs28bn was settled in the last quarter of 2020 while Rs55bn was still outstanding.
Despite these challenges, the petroleum secretary had warned the ECC, PSO had met its contractual international payments in July 2022, but “this will not be possible in August”, resulting in disruption of the national oil and gas supply chain in LNG and petroleum products. While PSO’s collections during the first fortnight of August are expected at Rs157bn, it is supposed to make an international payment of Rs267bn in the same period, indicating a net deficit of Rs100bn.
Published in Dawn, August 8th, 2022