Pakistan State Oil (PSO), grappling with severe financial challenges, is exploring a strategic path to acquire shares in state-owned oil and gas exploration companies and power firms. This move is aimed at addressing the pressing issue of the company’s burgeoning circular debt, which threatens to push it into default.
The Economic Coordination Committee (ECC) recently approved sovereign guarantees of Rs100 billion to bolster PSO’s financial position, signaling the gravity of the situation. The company is currently burdened with receivables exceeding Rs 700 billion, significantly hampering its ability to sustain operations.
Sources revealed to The Express Tribune that PSO is keen on acquiring shares in two major oil and gas exploration companies, namely Oil and Gas Development Company Limited (OGDCL) and Mari Petroleum, as part of its strategy to settle the looming circular debt. Additionally, efforts are underway to transfer the Nandipur Power Plant to PSO, and the company is eyeing the acquisition of Gujranwala Electric Power Company (Gecpo) to establish a footprint in the power sector.
“The acquisition of power companies will be another significant step in expanding PSO’s presence in the power sector,” according to informed sources. PSO had previously established PSO Renewable Energy (Pvt.) Limited, with a focus on developing and executing renewable energy projects in alignment with the government’s renewable energy policy.
While traditionally confined to marketing petroleum products, PSO diversified into the LNG business in 2015 through a long-term supply contract with Qatar on a government-to-government basis. This strategic move broadened PSO’s business scope but also led to the creation of circular debt due to the absence of a legal framework for gas utilities to supply expensive LNG to domestic consumers.
Presently, PSO is anticipating over Rs 450 billion from Sui Northern Gas Pipeline Limited (SNGPL) for supplying LNG, yet unresolved due to the lack of a mechanism to recover LNG costs from domestic consumers. Despite the caretaker government’s recent gas price hike of up to 139%, PSO’s financial struggles persist, prompting the approval of sovereign guarantees for a Rs 100 billion borrowing from banks.
In addition to SNGPL, power companies are major defaulters, owing over Rs180 billion to PSO. Notable among them are Gencos with a debt of over Rs150 billion, Hubco with Rs28 billion, and Kapco with Rs5 billion. These companies, chronic defaulters, have not paid PSO for fuel supplies for power generation.
Pakistan International Airlines (PIA) also stands as a substantial defaulter, owing Rs 26 billion to PSO for fuel supply to run the operations of the national carrier. PSO, which also sources fuel from local oil refineries, is grappling with over Rs 60 billion in dues to these refineries.
To compound the financial challenges, PSO imports RLNG from Qatar and oil from Kuwait Petroleum Corporation, requiring over Rs 230 billion to clear dues for these LNG and oil supplies, including payments for Letters of Credit (LCs).
Published in The Express Tribune, November 12th, 2023.