SINGAPORE, Feb 20: Pakistan plans to issue some Rs15 billion bonds before September to cover outstanding debts from various state-owned companies owed to Pakistan State Oil, a senior state official said on Thursday.

Javed Nizam, chief executive of Pakistan Electric Power Corp and finance chief at Water and Power Development Authority (Wapda), told Dow Jones Newswires the government of Pakistan plans to issue the bonds to pave the way for PSO’s privatization later this year.

Details of the bond issue are still being discussed, he said. The additional cash should help strengthen PSO’s balance sheet ahead of its planned sale to strategic investors. The Privatization Commission said on Wednesday it would auction a 51pc stake in the PSO. Bids for the stake will open on April 26.

Various state-owned companies, including Karachi Electric Supply Corporation and Wapda, owe PSO close to Rs15 billion. Potential buyers want these dues cleared before the sale goes ahead. Potential bidders include Pakistan’s Fauji Foundation, Kuwait Petroleum Company and Saudi Arabia’s Midroc Holding.

The government owns 26pc of PSO and holds another 25pc stake indirectly through state-run mutual funds. The remaining shares are publicly held.

A corporate source closed to the PSO privatization said demand for the bond will be strong if it is guaranteed or underwritten by the government. “We must know what are the terms of this bond issue. I think very few investors will be interested to buy this paper if it’s issued by the KESC, which is already burdened with a huge debt,” he said.

International investors are carefully watching the PSO sale as a sign of direction for Pakistan’s promised wide-ranging privatization programme, which includes energy and infrastructure utilities.

PSO, with a 70pc market share of domestic petroleum sales, is a bellwether on the Karachi Stock Exchange, which rose more than doubled last year, making it the world’s best performing stock index in 2002.

PSO has long demanded that Wapda and the KESC clear up their debts, but the financial woes of those two power companies have prevented them from paying.

The government has previously issued sovereign guaranteed bonds to take power utilities out of their financial problems.

The share price of PSO rose Rs3.5, or 1.9pc, to Rs187.50 Thursday, with a volume of 21.8 million shares. — Dow Jones Newswires