PSO says LNG business ‘bleeding’ its resources

ISLAMABAD: Pakistan State Oil (PSO) has claimed that LNG (Liquefied Natural Gas) business is bleeding its financial resources as without this business, the company’s equity up to last year would have been higher by approximately Rs. 45 billion, well informed sources told Business Recorder.

This scenario was shared by PSO’s Managing Director and CEO Syed Muhammad Taha, and Chief Financial Officer(CFO) Gulzar Khoja, with the Board of Management (BoM) headed by Asif Baig Mohamed.

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Some of the key financial highlights shared with the BoM are as follows: (i) highest ever half yearly gross sales revenue of Rs. 1,931 billion; (ii) highest ever half yearly operating profit of Rs. 44 billion (excluding uncontrollable factors); (iii) Profit After Tax (PAT) at Rs. 7.8 billion was 3.3 times higher than loss after tax of Rs. 3.4 billion in the same period last year (SPLY). This improvement was attributable primarily to increase in Gross Profit by Rs. 44 billion (inventory gain during this period compared to inventory loss in SPLY, increase in margins of HSD, PMG, Hi-octane, LPG and Lubes) partially offset by higher operating expenses by Rs. 6 billion (higher charge of WPPF, WWF due to higher profitability), higher finance costs by Rs. 13 billion (due to higher borrowings and increase in policy rate) and higher taxation by Rs. 15 billion etc.; (iv) PSO’s white oil market share increased to 52.6% from 50.7% in SPLY, an increase of approx. 2% despite shrinkage in industry volumes compared to HYFY23; and (v) improved business performance resulted in 26% increase in earnings overHYFY23 with CAGR increasing by 38.4% from December 19 till December 23.

The CFO presented Gross Profit analysis, other income, administration and marketing expenses and other expenses, while explaining major reasons for variations, if any. While presenting administration and marketing expenses, she noted that administration and marketing expenses during the first half ended December 31, 2023 at Rs. 11.8 billion were lower than budgeted by 8%. All expenses under this head were well contained, however, an additional amount of approximately Rs. 150 million may be needed for sales promotion expenses during the year.

CFO stated that trade debts as on December 31, 2023 reached an alarming level of Rs. 548 billion compared to Rs. 496 billion as on June 30, 2023 primarily due to increase in receivables from SNGPL which increased to Rs. 401 billion compared to Rs. 344 billion as on June 30, 2023. Moreover, FE Exchange Loss receivable from the MoF stood at approx. Rs. 60 billion as on December 31, 2023.

The BoM was informed that the company’s average borrowings increased to Rs. 387 billion compared to Rs. 225 billion in SPLY reflecting an increase 72%.Financing costs increased to Rs. 25 billion compared to Rs. 12 billion in SPLY reflecting an increase of 108%. This deterioration was attributable primarily to significant increase in receivables from SNGPL and increase in policy rate.

It was noted that the LNG business is a loss-making business as not only the related trade debts get stuck with SNGPL but the company has to pay higher tax on this business as it is under the Final Tax Regime under the Income Tax Law.

MD & CEO, PSO added that had the LNG business not been with PSO, the company’s equity up to last year would have been higher by approximately Rs45 billion.

The BoM was informed that management has taken up the matter with the concerned Ministries a number of times in the past that income from LNG business should be brought under Normal Tax Regime as it is affecting PSO’s profitability significantly but so far there has been no progress in this regard.

The BoM was informed that the power sector also owed to PSO a significant amount of Rs. 90 billion as on December 31, 2023. It was noted that HUBCO is paying dividend to its shareholders but not making payments to PSO.

While presenting other receivables slide, CFO stated to the BOM that the other receivables as on December 31, 2023 stood at Rs. 112 billion compared to Rs. 103 billion as on June 30, 2023. She further stated that the main items in other receivables are ‘FE-Exchange Loss Receivable’ and ‘Sales Tax Refundable’ of approximately Rs. 60 billion and Rs. 40 billion respectively. And that the ‘FE-Exchange Loss Receivable’ may increase to approximately Rs. 100 billion if the money is not released to PSO. Management noted to the BoM that given the company’s dire liquidity situation, PSO has had to reduce its inventory to a bare minimum level and will not be able to bail the industry out in the event of a fuel crisis as it has been doing consistently in the past.

The BoM expressed its concern on the continued alarming increase in trade receivables from SNGPL and requested intervention of the Ministry of Energy and Ministry of Finance for recovery of overdue amounts.

Responding to BoM’s query, as a representative of MoE-PD, Shahbaz Tahir Nadeem noted that there is a G2G agreement with Qatargas however, multiple efforts have been made for signing of a tripartite agreement but to no avail.

After detailed discussion, the BoM resolved that the condensed unconsolidated Interim Financial Statements of the company for the half year ended December 31, 2023, be approved, and that Syed Muhammad Taha, Managing Director &CEO, Mushtaq Malik, Member Board of Management and Ms. Gulzar Khoja, Chief Financial Officer of the company, be authorized to sign the said Condensed “Unconsolidated Interim Financial Statements”.

With regard to special waiver in respect of provision against overdue balances of GENCOs, BoM also unanimously approved a special waiver in respect of provision against overdue balances of GENCOs (total Rs. 71.32 billion) and to continue supply to power sector and SNGPL as recommended by Board Audit Compliance Committee (BACC).

Copyright Business Recorder, 2024