PSO, SNGPL In A Debt Trap Due To Increasing Cost Of LNG
PSO is currently facing a significant financial burden as a result of its rising receivables, which have reached Rs620 billion, as it struggles to pay its debts to foreign LNG suppliers.
Pakistan State Oil (PSO) and Sui Northern Gas Pipeline Limited (SNGPL) have found themselves in a debt trap as a result of the increasing cost of liquefied natural gas (LNG). In the past, the power industry was a major offender when it came to payments due to PSO for the supply of furnace oil.
But as of right now, SNGPL is required to pay PSO a staggering Rs396 billion. Its debts, which totaled Rs277.8 billion in March last year, have been accruing ever since.
As a result of the company’s inability to recover debts from domestic customers due to the lack of a legal framework, PSO’s receivables against SNGPL have nearly doubled. Governments have continually delivered LNG to domestic consumers during the winter season to overcome the gas crisis.
Despite the fact that there is no legal framework in place to collect the money from domestic consumers, this is what is happening. PSO transports LNG cargoes to SNGPL for further distribution, and SNGPL then provides the gas to the final consumers.
The weighted average cost of gas, which is the average price of imported LNG and domestically produced natural gas, was approved by parliament during the previous administration in an effort to reduce circular debt in the gas industry.
However, this was contested in the Sindh High Court (SHC) and is not currently in effect. The only industry to receive LNG without a price subsidy was the compressed natural gas (CNG) sector.
Five export-oriented sectors, the fertilizer and textile industries, and other customers also received LNG at a discount. Because LNG cost was only available to address the gas shortage, it was more expensive.
Politically motivated gas schemes continued to gain support from various constituencies of lawmakers despite the fact that there was no domestic gas available in the country.Additionally, PSO was experiencing financial difficulties as a result of the nonpayment of dues from various sectors related to the supply of fuel.
In March of last year, these receivables totaled Rs. 508.3 billion due to a number of customers who did not pay their fuel supply invoices. The increase in PSO’s receivables during the first nine months (July to March) of the financial year 2021–22 was Rs151.3 billion, and it stood at Rs357 billion at the beginning of July 2021.
PSO is currently facing a significant financial burden as a result of its increasing receivables, cost of which have reached Rs620 billion, as it struggles to pay its debts to foreign LNG suppliers. PSO currently owes the Kuwait Petroleum Corporation (KPC) Rs 205 billion in standby letter of credit (SBLC) payments for LNG as well as fuel supply.
While PSO primarily provides oil to various clients throughout the nation, it also supplies LNG to public gas utilities.
In addition to oil, circular debt has also developed with the importation of LNG, adding Rs 396 billion to the debt. PSO must receive Rs 176 billion from the power sector as part of the total receivables due to oil supply for electricity generation.
Another significant group of defaulters are the generation companies, which must pay Rs 146 billion. While Kot Addu Power Company Limited (Kapco) is required to pay Rs5 billion, Hub Power Company Limited (Hubco) owes Rs24 billion. Another significant defaulter, Pakistan International Airlines (PIA), which is owed Rs23.7 billion, is also supplied with jet fuel by PSO.
The government also owes the state-run oil marketing company Rs. 8.9 billion for price differential claims. On the other hand, PSO must pay oil refineries Rs 41.38 billion for the supply of fuel.
It owes the Pak-Arab Refinery Company (PARCO), Pakistan Refinery Limited (PRL), National Refinery Limited (NRL), Attock Refinery Limited (ARL), and National Refinery Limited (PARCO) a total of Rs24.4 billion, Rs6.1 billion, Rs3.49 billion, Rs6.13 billion, and Rs1.12 billion to Enar.