Imminent default: ECC approves Rs30bn for crisis-hit PSO

ISLAMABAD: The Economic Coordination Committee of the Cabinet on Sunday in a special meeting decided to dole out Rs30 billion as supplementary grant to Pakistan State Oil (PSO) to salvage the state-owned company from an imminent default.

The ECC decided to clear the outstanding payments accumulated during the period of previous government. It was also decided in the meeting that the Power Division would make immediate payment of Rs20 billion by August 01, 2022 and Rs12.8 billion by August 04, 2022.

The ECC also directed the Finance Division and FBR to submit a proposal for generation of Rs30 billion through taxes within a week. On another summary of Petroleum Division on price mechanism of petroleum products, the ECC accepted the proposal to use the average of exchange rate for the relevant period rather than the exchange rate of the last day for the current as well as future price determinations.

The ECC also directed the Petroleum Division to work out in consultation with OGRA other options of setting up petroleum product prices within a week. It further directed the Petroleum Division for submission of proposal within a week to regulate the prices of kerosene oil and light diesel oil after consultation with relevant stakeholders.

According to official sources, the ECC was informed that Pakistan State Oil’s receivables had risen to Rs608 billion by the end of July 2022. A major contributing factor to the alarming situation is stated to be LNG supply, which has added a cash shortfall of Rs213 billion since July 1, 2021 causing the total LNG receivables to Rs339 billion.

SNGPL, in turn, is constrained by delaying in payments from Central Power Purchasing Agency (CPPAG) and its receivables have increased to Rs113 billion from Rs43 billion in January 2022. The direct receivables of PSO from CPPAG stand at Rs182 billion, including Rs16 billion accumulated since July 01, 2022.

Pakistan State Oil has been facing severe liquidity crunch due to delay in payments by respective entities. As a result, the company failed to honour contractual obligation of paying Rs80.7 billion to Kuwait Petroleum Cooperation. Besides, it also failed to deposit Rs16 billion to GoP under ITFC facility.

In addition, the company also failed to fetch Rs69 billion revenue generation due to decline in sales of HSD and MS by 28% and 32% respectively. To add fuel to fire, freefall of rupee against US Dollar (17.8% in July 2022) has also increased the procurement cost of these products by Rs63 billion.

Despite all odds, PSO managed to fulfil its international contractual payments in July 2022. However, the company can no longer fulfil the obligations from August 01, which could disrupt the oil and gas supply chain in LNG and petroleum products.

PSO is obliged to make an international payment of Rs267 billion in the first fortnight of August 2022. However, its expecting income during the period is about Rs157 billion resulting a net deficit of Rs100 billion.

Given the situation, the ECC was proposed to release Rs54.6 billion immediately as PSO receivables from GoP against exchange loss; to direct National Bank of Pakistan and other banks to extend the credit limits for PSO on an emergency basis; to direct Power Division for making immediate payments of current outstanding amounts of Rs12.80 billion against the purchase of furnace oil and Rs20 billion against RLNG supplies by August 02, 2022.

The sources said that the finance ministry did not make budgetary allocation in current fiscal year on this account, so the requisite financial support has to be arranged through supplementary grant.

Considering fiscal constraints and understanding with IMF, the supplementary grant so provided will result in outflow beyond the numbers agreed with IMF. However, in order to rescue PSO from a default like situation, the measures proposed include supporting Rs30 billion as supplementary grant, which may be booked as expenditure on this account.

The ECC meeting was presided over by Federal Minister for Finance and Revenue Miftah Ismail and attended by Federal Minister for Power Khurram Dastgir Khan, Shahid Khaqan Abbasi, Musadik Masood Malik, Coordinator to the PM on Economy Bial Azhar Kayani, Chairman FBR, Chairman OGRA, federal secretaries and senior officers.