Fuel supplies to IPPs: PSO needs Rs 158 billion by October 31 to avoid L/Cs' default

The cash starved Oil Marketing Company (OMC), Pakistan State Oil (PSO), has warned the Ministry of Finance (MoF) that its letter of credits (L/Cs) for oil import will default if the ministry did not arrange Rs 158 billion by October 31 to maintain fuel supplies to power sector.
Sources in Finance Ministry told Business Recorder on Wednesday that PSO management had written letters to Finance and Petroleum Ministries, saying that it would require Rs 158 billion by October 31 to maintain fuel supply to independent power producers (IPPs).
"A steady and regular payment to PSO is essential to ensure timely and consistent supplies to the independent power producers (IPPs) and in the absence of finances, PSO is likely to default on its L/Cs, resulting in total disruption of the supply chain position," PSO management warns in letters sent to the concerned ministries. As on August 31, net outstanding receivables by PSO against Water and Power Development Authority (Wapda), Hubco, Kapco and other customers stood at Rs 83 billion.
PSO is to make payment of Rs 75 billion against furnace oil imports letter of credits (LCs) from September 1 to October 2009. Payment to be made on 11 LCs already opened (inclusive of sales tax) is Rs 31 billion and Rs 44 billion is required for the other 15 LCs that are still to be opened.
PSO has made payment of rupees four billion to refineries; Rs 2.3 billion to Kuwait Petroleum Corporation (KPC) and Rs 4.9 billion on account of letter of credits (LCs) for oil import out of total released money worth Rs 10 billion by the Finance Ministry. During the month of August, PSO supplied products worth Rs 27 billion to the power sector and it received dues, amounting to Rs 15 billion on fuel supply to power sector that includes recently released amount of Rs 10 billion.
PSO is already in default to oil refineries due to failure to pay dues, amounting to Rs 12 billion. Power sector is the largest defaulter of PSO, receiving furnace oil worth two billion on daily basis. Due to non-payment of dues by PSO to oil refineries, the refineries have reduced their production, which would imply increased import bill to purchase refined oil to meet domestic requirements.