Sui gas told to seek bank loans for smooth LNG imports

ISLAMABAD: The Pakistan State Oil (PSO) will not borrow loans from commercial banks from now onwards to ensure a smooth supply of LNG in the country.

Instead, Sui gas companies - Sui Northern and Sui Southern - have been asked to arrange for the required liquidly through banks to enable the PSO open and retire the commercial Letters of Credit (LCs) about import of gas on time, a senior official of Energy Ministry told The News.

“The PSO has already been exposed to Rs461 billion as a whole in borrowing and its financing cost has exceeded Rs7 billion. The situation is no longer sustainable and the PSO cannot finance SNGPL anymore in the head of LNG as PSO’s finance cost is expected to rise from Rs3.6 billion in FY2022 to a staggering figure of Rs64 billion in FY2024.

“Interestingly, the gas companies have started recovering the RLNG price from the domestic consumers also under WACOG (weighted average cost of gas) mode, but are not paying the cost of RLNG to PSO.”

“The top functionaries of the petroleum division have instructed gas companies to borrow loans to pay PSO for smooth LNG imports in the country.” Under the LNG agreement with Qatar, the PSO is the nominated entity of the government that will import LNG and payback for the product. Now for three months, the gas companies have been asked to borrow loans to pay PSO for smooth LNG imports and if the billing cycle of both the gas companies gets improved after the gas price hike and enforcement of limited WACOG, it would also help to pay the PSO.

As per the latest payable and receivable position, the PSO’s liquidity position has worsened to an unbearable level as its receivables have touched a new high of Rs852 billion, with a massive default from Sui Northern. Receivables from the SNGPL have mounted to Rs571 billion, which continue to hike. The power sector is the second biggest defaulter and it owes the PSO Rs187 billion, the PIA Rs27.8 billion, and an exchange loss of Rs57 billion on FE-25 loans.

“We have arranged Rs50 billion for the PSO and another amount will be arranged for March to improve the liquidity crisis of PSO to this effect, Sui Northern will arrange a loan to pay PSO,” a senior Energy Ministry official said.

“Last year in January, the PSO borrowed Rs100 billion to ensure LMG supplies in Pakistan on account of the failure of both the gas companies to pay it on time. Now PSO has reached the verge of default and it cannot borrow from the inefficient gas companies that use RLNG but fail to pay back to PSO.”

The official said that one month is consumed by the gas companies in the billing process, another 10 days are consumed in recovery of bills and 5-10 days are used in reconciling the bills. The whole process consumes 50-60 days. However, the PSO has to pay for LNG cargo in 10 days after it is offloaded and when the recovery of gas bills takes place in 60 days, six cargoes are offloaded. So the PSO has to borrow loans from commercial banks. “Now the government has asked the gas companies to arrange for liquidity from commercial banks enabling PSO to open LCs and retire them on time.”