Govt asks refineries to maintain fuel supply to cash-strapped PSO

KARACHI: The government has asked local refineries to keep supplying fuel to the state-owned Pakistan State Oil (PSO), which is facing a cash crunch due to mounting circular debt in the energy sector, a letter from the petroleum ministry showed on Friday.

The letter was sent after some refineries reduced their supplies to PSO due to non-payment of dues, sources in the oil sector told The News.

“The government is in the process of resolving PSO’s circular debt issues on LNG supplies,” said the letter of the Petroleum Division, written to the local refineries. “Refineries are requested to continue their support for PSO and ensure uninterrupted product supplies in order to sustain the oil supply chain in the country.”

The receivables of PSO have crossed Rs850 billion, worsening its liquidity crunch. Overall receivables of the company stood at a staggering Rs853 billion compared to Rs802 billion recorded in December 2023 and Rs362 billion in August 2021.

Industry officials said PSO’s receivables from Sui Northern Gas Pipeline Company Limited (SNGPL) have surged to Rs572 billion, including Rs187 billion from power generation companies.

“PSO is struggling to pay pending dues to oil refineries, with payables at unprecedented levels as it owes Rs37.47 billion to refineries,” said an industry official.

PSO payables include Rs21.73 billion to PARCO, Rs8.35 billion to PRL, Rs6.79 billion to ARL, Rs585 million to ENAR, and Rs104.49 billion for the import of diesel from Kuwait Petroleum Company, and LNG imports from Qatar.

Officials said that refineries have not halted the supplies to PSO, “however these supplies have been reduced in the recent weeks after the government-owned entity was not paying dues to refineries”.

They said that liquidity crunch in PSO has also been affecting its payment for settlement of letter of credits (LCs) and said that in the latest development, PSO paid the payment to the government over settlement of LC for its onward transfer to Kuwait Petroleum Corporation (KPC) in two months instead of the earlier schedule of one month. The government pays this amount to KPC in two months after receiving the payment from PSO.

Industry officials said PSO is finding it difficult to settle LCs along with its inability to pay the dues to the refining sector on procurement of petroleum products. “The refineries have also honored commitments for payment to buyers in the international market but dues clearance from PSO has been a continuous problem.”