Karachi Pakistan State Oil (PSO) is suffering tough crisis of cash liquidity as its total receivables standing at the high point of Rs179 billion that made its financial situation untenable.
PSO has struggled to supply fuel worth an average of Rs32 billion to the power entities on a monthly basis despite repeated non-payments from power sector.
The huge outstanding caused by non-payments from the power sector and airline has crippled PSO’s liquidity position and may lead to an inevitable breakdown in the supply chain resulting in fuel shortages in the country.
Despite this, the power sector namely HUBCO, WAPDA and KAPCO have continuously defaulted on their payment obligations to PSO. An average shortfall of Rs10 billion per month has been recorded in payments from the power sector for the past 6 months, with just Rs 5.2 billion being disbursed to PSO in the month of November.
The company in its role as the nation’s largest energy company has been providing uninterrupted fuel supplies to every sector of the country.
A similar situation is occurring with the continuous default by PIA. The national carrier has been violating its agreement with PSO by failing to make regular payments for the fuel it receives. As of today, PIA owes PSO Rs4.3 billion while their payments have become irregular the carrier has increased its daily average fuel purchase from Rs 60 million to Rs 70 million worth of product. The national carrier had promised to pay back Rs 1 billion of its outstanding by end of October however; they not only violated this commitment they have recently stopped their daily fuel payments to PSO as well.
At present, the situation has now reached a critical level as the continuous non-payment by these entities has left PSO cash-strapped and unable to meet its payment obligations to both local and international suppliers.
In case immediate payments are not received by the defaulting entities be it power sector or the national carrier, import of future fuel cargoes will have to be deferred as the company has exhausted its financing resources. With domestic production of fuel oil already in doldrums, any reduction in import would result in fuel shortages, increased load shedding and disruption of flight schedules nationwide. Faced with this situation PSO will be left with no choice but to discontinue supplies to any defaulting customer until its outstanding receivables are recovered.
PSO as the largest energy company in the country is cognizant of its responsibilities and has time and again fulfilled its commitment to adequately meet the energy needs of the country. However, given the critical level of the circular debt and mounting receivables, living up to the credo of “PSO never stops” is a challenge on its own.
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