ISLAMABAD/KARACHI: PIA has defaulted on payment of Rs26.8 billion of Pakistan State Oil, which is why the state-owned oil marketing company cannot afford to provide more fuel to the national flag carrier as a free lunch, and it has decided to provide fuel to the airline on advance payment for revenue-generating routes only, not for all.
“In light of the financial challenges faced by PIA, the PSO authorities have established an understanding with airline top management that stipulates that PSO will supply jet fuel to PIA, contingent upon advance payment and a flight-wise priority list. Even though PIA still has outstanding dues amounting to Rs26.8 billion (comprising Rs14.8 billion in principal amount and Rs12 billion in late payment surcharge) as of October 23, 2023, we stay steadfast in our dedication to serving our national carrier. Our goal is not only to continue providing service to PIA but also to find a mutually beneficial solution that addresses the concerns of both organizations,” a PSO spokesperson responded to The News when asked why PIA is not being supplied fuel as, in the last 11 days, almost PIA has cancelled its 330 flights because of the non-availability of fuel.
Mentioning the challenges of PSO, she said that the biggest issue for the state-owned OMC is the circular debt, which has swelled to Rs765 billion, and the delay in payments of Rs487 billion by SNGPL in the head of LNG, Rs185 billion by the power sector, and Rs26.8 billion by PIA has triggered a serious liquidity crisis, which promoted the OMC to massively arrange borrowing from commercial banks just to keep fuel supply intact in the country. More importantly, the liabilities of PSO have soared to Rs202 billion, including payables of Rs60 billion to refineries and Rs142 billion required to open and maintain LCs for Kuwait Petroleum Company for the import of diesel and a standby letter of credit for the smooth import of LNG from Qatar.
“Excessively high interest rates during the FY23 year have significantly increased the financial costs of the company, eroding its profitability almost in entirety. Average circular debt receivables in the year increased by 56 per cent from last year’s average, while average receivables from SNGPL increased by 84 per cent.
Owing to this, coupled with drastically reduced sales demand for white and black oil products and high oil prices, our average borrowings during the year increased by 163 per cent compared to the previous year’s average, resulting in a cost of finance of Rs40 billion for the year.
“In Q1 FY24, elevated interest rates increased the finance cost by 113% from the same period last year to Rs. 10.2 billion in the quarter, eventually eroding the company’s profitability by a large amount.”
Private OMCs are manoeuvring their business strategies and procurement plans in their best interest, thus creating major imbalances in the demand and supply situation of the country and increasing the risk of dry-outs. Despite the onus of its circular debt receivables, such unplanned imbalances are eventually managed by PSO at the financial cost on its books. It results in liquidity pressures and an increase in the cost of funds for the company.
She said that PSO stands unparalleled as the only oil marketing company spanning the breadth of Pakistan, from the Arabian shores to the distant reaches of Sost. We have remained committed to securing the country’s energy supply chain and have continued to dominate the country’s market with a 50.4% market share.
PSO is maintaining the country’s fuel supply chain with 3,528 retail outlets, nine installations, 19 depots, refuelling facilities at 14 airports, and operations at two seaports. PSO storage capacity of 1.14 million tonnes is the largest in the country.
PSO brings in approximately six million metric tonnes of LNG annually through government-to-government contracts. The company’s lubricant manufacturing plants have a combined blending capacity of 70 thousand tonnes per year. PSO also established 13 LPG storage and bottling facilities across Pakistan to effectively serve its customers. During times of challenge, such as strike calls, PSO consistently takes the lead and plays a crucial role in ensuring uninterrupted fuel supply across the country. PSO, being a responsible corporate entity, is one of the top contributors to the national exchequer in terms of taxes. PSO paid Rs697 billion for taxes and duties in FY23.
As many as 47 domestic and international flights of the national flag carrier were cancelled on Thursday (October 26) despite the payment of Rs13.5 million to the Pakistan State Oil. According to officials, fuel is being supplied to certain PIA planes after fresh payment.
