PSO tells power generation companies it can''t import LSFO

Pakistan State Oil (PSO), the state owned fuel supplier, has conveyed to power generation companies that due to the current financial crunch owing to the accumulating circular debts it is unable to continue to tender for importing Low Supphar Furnace Oil (LSFO), official sources told Business Recorder. According to latest reports, PSO is owed Rs 80 billion by financially ill power generation companies.
PSO has been maintaining uninterrupted supply of LSFO to Kot Adu Power Company (Kapco) for the past several months. It was only after an exchange of correspondence and exchange of discussions, an amount of Rs 14 billion was transferred to the PSO directly in March 2009 for adjustment against Kapco outstanding dues of Rs 25 billion. Since then no payment has been received and with the continuity of supplies, the outstanding has accumulated to over Rs 20 billion (inclusive of the LSFO-HSFO price differential amount).
Consequently, PSO is unable to make payment to Attock Refineries Limited (ARL) as a result of which supply of local LSFO has been drastically reduced. Presently, the major portion of LSFO supplies is imported. Nonetheless PSO which is facing serious cash flow problems due to non payment by major fuel customers of the power sector totalling Rs 80 billion inclusive of Kapco, is not able to procure the product through imports.
"We apprehend that PSO will not be in a position to go for tendering process of LSFO cargos anymore. We have already conveyed this to WPPO with the request to arrange payment of the outstanding LSFO-HSFO price differential amount immediately," the sources quoted, PSO''s top management informing the Petroleum Ministry. The sources said that PSO was of the view that it has taken this stand to save the utility from complete collapse/shut down as it is meeting 75 per cent POL requirements of the country.
"We asked Kapco to pay outstanding dues on most urgent basis enabling the company to make necessary arrangements for import of LSFO failing which we will not be in a position to import any further cargos," the sources quoted the General Manager, Consumer Business of PSO as writing in a letter a couple of days ago.
A couple of months ago, the government had floated Term Finance Certificates (TFCs) to clear a portion of the inter circular debt but the current status of outstanding amount of Rs 80 billion against public sector power generation companies and Kapco is again a source of serious concern. The government has earmarked Rs 30 billion in 2009-10 budget to pay interest on TFCs but this amount is clearly inadequate to deal with the issue of inter circular debt which indicates that the power crisis will intensify in the coming months.