PSO proposes shares’ transfer to Mari, OGDCL, PPL

Aftab Ahmed

Pakistan State Oil (PSO) has proposed the government transfer its shares to Mari, OGDCL, and PPL under an equity swap arrangement.

The proposed arrangement would help clear the circular debt of Rs 100 billion.

In a letter sent to Asad Hayauddin, Secretary Petroleum Ministry of Energy (Petroleum Division), PSO management said its circular debt had touched an alarming level. It further said that the company appreciated the Ministry of Energy’s support towards resolving the chronic issue of circular debt.

The state-run oil marketing company (OMCs) said it is imperative to create fiscal space within the energy supply chain. The management said that there were different options available to resolve the circular debt. Accordingly, it suggested the options of equity swap to settle PSO’s receivable of Rs 100 billion.

PSO said that circular debt had financially crippled it for years. Consequently, the company’s financing costs had also escalated significantly, with last year’s interest payments recorded at Rs 15 billion. This chronic situation had also adversely affected profitability and hindered infrastructural development investments of the company.

As a viable option, PSO management said that the government of Pakistan could transfer a certain portion of its shareholding in MARI Petroleum Corporation, OGDCL, and/or PPL against receivables of PSO.

However, it further said that the settlement of circular debt by transfer of these shares would not require the government to arrange any funds while keeping control of these strategic assets through PSO.

PSO believed that the above market value might not reflect the fair value of these entities. Therefore, it proposed that the government appoint an independent financial adviser to assess these shares’ fair value and finalize other terms and conditions.

Owing to the energy transition focusing on renewable energy, the global demand for fossil fuels, specifically oil, will go down. Therefore, the company also proposed the government explore other options of business. PSO said it is high time for the company to explore other avenues of business adventure.

Earlier, the petroleum division proposed to impose Rs 3-5 per liter additional petroleum levy. It suggests imposing a levy on petrol and high-speed diesel to clear the entire debt. It is said that the average industry sale of Petrol and Diesel is around 1.8 billion liters per month. PSO’s circular debt had touched the Rs 318 billion mark on the supply of petroleum products and LNG.

The petroleum division hopes to raise Rs 5 billion per month. The power sector is a major defaulter of PSO that is to pay Rs 196 billion. The state-run entity had faced circular debt on fuel supply to power plants and other sectors like PIA. However, PSO had now faced circular debt on account of the LNG supply.