Rs 24 billion paper guarantees to be floated to bail out oil and power sectors

The government has decided to bailout budgetary imbalances of the oil and power sector due to circular debt by floating Rs 24 billion paper guarantees by the Finance Ministry next week, it is reliably learnt on Saturday. The Finance Ministry has calculated that the total accumulated impact of this paper injection would be Rs 79 billion in terms of circular debt reduction.
The Finance Ministry revealed that main advantage of the exercise is that cash transfers were not involved and only book adjustments would be made in the accounts, said the sources. The sources said that the main beneficiary of the process would be state-owned oil marketing company Pakistan State Oil (PSO), which fearing that its LCs might default due to liquidity problem had recently sought the SOS from the government.
The sources in the Finance Ministry revealed to Business Recorder that the process would start from Pakistan Electric Power Company (Pepco) that would pay to electricity producers after keeping their margins. In return, the electricity producers would pay to the furnace oil suppliers and the last end of the chain would be oil and gas producers.
The sources said in the end, state owned exploration companies, OGDCL and PPL would transfer the equivalent amount of their dividends to the government. They said the Finance Ministry had agreed to inject Rs 24 billion in the balance sheet of power sector to be initiated from the Pepco and the process would continue to reduce circular debt.
The sources further said that the state guarantees were expected to be launched early next week, and the process was expected to be completed within the week, as the companies would be deciding dividends at the end of fiscal year.
"The government plans to inject some cash in the system in the first quarter of the next fiscal to improve the financial health of power sector and the PSO, and the sources hoped that reduction of subsidies on electricity from July were likely to bring liquidity in the power sector.
The Finance Ministry decided to carry out the exercise as the PSO had requested the government to make immediate release of Rs 50 billion to ease its financial situation for continuing fuel supply in the country, said the sources. Earlier, the PSO management requested the Petroleum and other concerned ministries for immediate release of Rs 30 billion that was not entertained due to reluctance of the Finance Ministry.
The PSO dues against different clients have piled up to Rs 83.6 billion, putting heavy burden on the state-run marketing company. The PSO is the major supplier of furnace oil to power sector that is to recover Rs 20.823 billion from Water and Power Development Authority (Wapda); Rs 33.252 billion from Hubco; Rs 21.203 billion from Kapco; and Rs 2.736 billion from PIA.
The PSO is to recover Rs 5.092 price differential claims (PDCs) on petroleum products from the government. Owing to non-payment of dues from the power sector, the PSO has defaulted to oil refineries and it is getting problems to get fuel supply from them. The PSO is to pay Rs 62.126 billion to the oil refineries - Rs 30.221 billion to Parco; Rs 9.612 billion to PRL; Rs 9.187 billion to ARL; Rs 8.059 billion to NRL; and Rs 5.047 billion to Bosicor.