It seems that Pakistan State Oil (PSO) is experiencing a financial situation, as the company informed the current regime that it can no longer carry the burden of debt servicing for Pakistan International Airlines (PIA) and the power sector.
The oil marketing firm has sent a letter to the Ministry of Petroleum and Natural Resources on 23rd June and requested the ministry to intervene for resolution of the matter. Moreover, PSO is not the only company that has been asking PIA to clear its debts, the national carrier is also the third biggest defaulter of Sui Northern Gas Pipelines Limited.
It is pretty evident that PSO is experiencing financial problems and speculations suggest that the uncontrolled menace of circular debt is affecting business of the company. To be more specific, the total circular debt of the power sector is PKR 441 billion. Also, the company has receivables of PKR 249 billion from the total debt as of July 4, 2017. In total, PKR 287.4 billion is owed to the state oil company.
The letter that PSO sent to the government states that it has to maintain the supply chain of petroleum products in the entire country including LNG and fuel. If the defaulters failed to settle their debts then PSO may become an international defaulter, which will have a negative impact on the supply of fuel throughout the country. In addition, refineries are dependent on timely payments from PSO, therefore, delay in this regard could stop them from supplying fuel.
Moreover, as per the terms and conditions of the fuel supply agreement between PIA and PSO, the national carrier is required to make the payments within first seven days from the submission of invoice. Nevertheless, in case of delay in the payments, PSO reserves the right to apply a late payment surcharge to the national carrier.
Additionally, the letter also states that PSO’s management had a meeting with PIA’s executives regarding clearance of outstanding dues, but the airline failed to make the payment. The oil marketing firm has been continuously reminding the ministries of petroleum, aviation and finance about the debt situation.
As of yet, PSO has managed to arrange only PKR 142 billion by borrowing funds from banks in order to maintain the supply of fuel to the power houses. However, this approach is not feasible in the long run.