PSO may seek extension in credit limit as outstanding payments soar Rs337bln

LAHORE: State-owned Pakistan State Oil (PSO) is mulling to apply with the central bank to extend its credit limit for international oil payments as the country’s biggest oil marketing company has yet to be paid over Rs337 billion in bills owing to various public sector entities, officials said on Tuesday.

The officials said PSO was lately managing liquidity through local borrowing and banking deferred payment facility (FE-25 rollover), which is now insufficient to cover upcoming letter of credit payments.

“We have exhausted the available credit limit and are left with no option but to go for augmenting credit limit through the central bank,” an official told The News, requesting anonymity.

“SBP (State Bank of Pakistan) will have to increase per party limits and additionally make available larger funding under FE-25 as the amount of Rs24 billion received to date will only cover approximately three weeks of imports at 20,000 tons per day consumption,” the official said.

The official further said interest payment will also increase as international oil prices are going up.

Officials said there is catch-22 as power sector has already consumed all the available limits under deferred payment facility to settle circular debt.

PSO requires Rs72 billion cash injection against 7-day credit arrangement and funds for repayment of FE-25 loans as and when required with current outstanding of Rs96 billion.

“It is a complex situation as FE-25 loans are ultimately to be repaid which is not possible without fund injection,” the official said.

Officials said persistent failure of the present government in resolving circular debt has threatened financial viability of PSO as its receivable from power sector, Sui Northern Gas Pipelines Ltd (SNGPL) and Pakistan International Airlines (PIA) surged to Rs337.2 billion as of March 27, posing risk to entire fuel supply chain.

“Smooth cash flow assumes immense importance for a company like PSO as it has to honour its international and local payment commitments against already procured and supplied products,” an official said.

The official said power sector has defaulted Rs72 billion in payment to PSO under seven day credit arrangement, while outstanding liquefied natural gas payment has also swelled to Rs28 billion.

On financial deficiencies, the official said resolution of circular debt’s outstanding amounts through various options is already under discussion in the government circle.

“Top priority should be given to immediate payment of Rs72 billion (to PSO), which is required to avoid untoward situation in payment obligations,” the official added.

The official further said any future furnace oil credit supply should strictly be based on the standby letter of credit/letter of credits to be established by the power

sector entities to avoid further accumulation of circular debt.

“Moreover, as agreed in cabinet committee on energy, 60-75 days prior notice will be required from power sector for any further furnace oil imports,” he added.

In March 2017, the National Assembly was told that PSO’s receivables from power sector, PIA and SNGPL soared to Rs272.3 billion.

The then minister for petroleum and natural resources Shahid Khaqan Abbasi, in a written reply, said PSO’s total receivables from the power sector alone stood at Rs231.2 billion, while PIA and SNGPL owed Rs41.1 billion to the oil marketing company.