ECC approves Release of Rs 30b to Rescue PSO from Payments’ Default

The Economic Coordination Committee (ECC) has approved the transfer of Rs 30 billion to prevent Pakistan State Oil (PSO) to stop from defaulting on its international obligations.

PSO was on the verge of financial default as its receivables ballooned to Rs 605 billion, a record amount in Pakistan’s history.

ECC was reportedly informed by sources that Pakistan State Oil (PSO) would pay Rs 408 billion to Qatar and Kuwait Petroleum Company (KPC) for the supply of LNG and oil, respectively.

At the Finance Division, Federal Minister for Finance and Revenue Miftah Ismail presided over the Economic Coordination Committee (ECC) meeting of the Cabinet.

Ministry of Energy (Petroleum Division) provided a synopsis of the SOS call for cash for Pakistan State Oil Company Ltd. (PSPCL) to satisfy international contractual payments from August 1-14, 2022.

Petroleum division informed that sales of HSD and Petrol declined by 28 per cent and 32 per cent respectively. In addition, a further depreciation of the Pakistan Rupee relative to the U.S. dollar has increased the cost of acquiring petroleum products.

For the continuation of the oil and gas national supply chain and to prevent PSO from defaulting on international payments, the Economic Coordination Committee (ECC) decided to clear the outstanding charges accumulated during the tenure of the previous government and approved Rs. 30 billion as a supplementary grant for PSO receivables.

In addition, it was resolved during the meeting that Power Division will make immediate payments of the overdue monies of Rs. 20 billion by August 1, 2022, and Rs.

The ECC also instructed the Finance Division and FBR to present within a week a scheme to generate Rs. 30 billion in tax revenue.

ECC also approved the proposal to use the average exchange rate for the relevant period rather than the exchange rate of the last day for the current as the basis for future price determinations, in light of the possibility of oil refineries going on strike and thereby exceeding the average exchange rate.

Prior to conducting an emergency meeting of the ECC, oil refineries and the petroleum division had proposed using an average exchange rate of Rs 225 to compute prices rather than the rate on the last day of the fortnight.

The new formula would also affect Pakistan State Oil (PSO), the state-owned oil marketing firm, which was on the edge of bankruptcy.

During the most recent meeting, ECC increased dealer margins but refused to enhance OMC margins.

The Oil Companies Advisory Council (OCAC) warned the petroleum division in a recent letter that the finance cost of sustaining 20 Days Stock Cover & Pipeline Deadstock consumes approximately 70% of the present OMCS.

They also informed that turnover Tax – at current prices, the Turnover Tax of 0.5 per cent consumes around 30 per cent of the OMCs’ margin, so drastically reducing the OMCs’ profitability.

Oil Refineries threaten to go on strike due to the capping dollar at Rs225

OMCs oil Margins: OCAC Expresses Serious Concerns over refusing to increase

In addition, demurrages are a factor that has increased the cost of doing business for OMCs.
It was stated that a delay in the berthing of vessels as a result of port congestion had resulted in demurrages that weighed on the OMCs’ margin.

Officials also highlighted that LC Confirmation Charges account for approximately 65 per cent of all imported motor fuels; LC confirmation charges have dramatically escalated and have had a serious impact on the profitability of OMCs.

OCAC suggested that the OMC Margin be revised to Rs. 8.85 per litre for both PMG and HSD, effective 1 August 2022, based on the present global and local situation.

According to the statement, the ECC also instructed the Petroleum Division to engage with OGRA within a week to determine alternative methods for establishing the prices of petroleum products.

The ECC also instructed the Petroleum Division to submit a proposal to regulate the prices of Kerosene Oil and Light Diesel Oil within a week, after consulting with the relevant parties.