Two fertiliser plants, domestic sector: PSO needs Rs39bn for payment obligations and sustaining LNG supply chain

ISLAMABAD: Petroleum Division has sought Rs 39 billion against supply of RLNG to two fertilizer plants and domestic sector enabling Pakistan State Oil (PSO) to remain afloat in its payment obligations to LNG suppliers, as well as, to avoid any threat towards breakdown of LNG supply chain, well informed sources told Business Recorder.

Pakistan State Oil Company Limited (PSO) is engaged in import of Liquefied Natural Gas (LNG) in the country to meet the energy requirements of the country in terms of LNG and petroleum products. The re-gasified LNG (RLNG) is predominantly purchased by SNGPL for onward sale to its consumers.

On an annual average, power sector consumes up to 70% of RLNG whereas balance of RLNG is supplied to industry (export and non-export), fertilizer, commercial sector, CNG, cement and domestic (supply volume increases in winters). SNGPL supplies RLNG at subsidized prices to export industry and fertilizer, the recovery of which is always contingent upon budgeted subsidy.

Petroleum Division, in its summary for the ECC, has stated that in the case of export industry, the budgeted subsidy during the CFY is Rs. 40 billion which is sufficient to meet SNGPL’s requirement. However, there is pending claims of Rs. 26.059 billion against subsidized supply of RLNG to two fertilizer plants i.e., FatimaFert Ltd and Agritech Ltd until 3rd January, 2023 when ECC decided to discontinue subsidized RLNG supplies to both plants.

Against RLNG supplies to power sector, SNGPL’s payments are overdue and are not being fully realized on timely basis. Similarly, LNG diversion to domestic sector in winter months always carries a tariff differential which has accumulated to a level of Rs. 165 billion up to December, 2022 whereas the budgeted subsidy for addressing this differential is Rs.25 billion during CFY. Petroleum Division could only be able to release Rs. 12.50 billion after approval of the Finance Division.

During period Mar-23 to Sept-23, maximum imported LNG by PSO in terms of number of LNG cargoes under long term contracts with Qatar Energy is as follows: March 9 cargoes (PSO term cargoes 8, PLL term cargoes 1), April 10 cargoes (9+1); May 9(8+1); June 9 (8+ 1); July 10 (9+1), August 10(9+1) and September 9 (8+1).

Under the term contracts, the delivered cost of each cargo at present price for the month of February 2023 @ USS 12.7148/mmbtu comes to US$ 41 million so the cumulative financial impact of forex on nine (09) cargoes per month comes out to be US$ 369 million per month.

PSO is importing 8-9 LNG cargoes per month whereas as per the executed contracts with LNG suppliers, PSO is obligated to clear the invoice on 15th day after completion of unloading of cargo and/ or 10th banking day after receipt of invoice from supplier whichever is later. PSO, in its letter of February 20, 2023 has conveyed a SOS call for funds considering the fact that PSO’s receivables from SNGPL have accumulated to Rs. 473.3 billion (including interest).

The ECC of the Cabinet in its meeting held on January 03, 2023 while considering a summary of the Petroleum Division on the subject approved borrowing of Rs. 50 billion in favor of PSO backed by sovereign guarantee. PSO is in process of borrowing the funds as the letter of comfort was lately issued by Finance Division on 16.02.2023.

However, PSO is of the considered view that even with arrangement of Rs.50 billion commercial borrowing, there may not be adequate improvement in its liquidity requirements leading to possible default in its international payment obligations.

Copyright Business Recorder, 2023