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Oil and Gas Regulatory Authority (OGRA) has taken notice of the serious petrol shortage and has issued show cause notices to Oil Marketing Companies (OMCs) which according to law are bound to keep at least 20 days stock of the commodity.
The regulatory body has summoned all the high officials of the OMCs for an emergency meeting on Friday (today) to have firsthand knowledge about the current fuel shortage.
A senior official of the Petroleum Ministry talking to Business Recorder on the issue said that state-owned Pakistan State Oil (PSO) has time and again informed the government that if the power sector did not make due payments the company will default, adding that finally PSO became defaulter of Rs 50 billion on account of Letter of Credit (LCs).
Officials said that the fuel shortage was created because of the delay in ships reaching Karachi port and on Thursday a ship carrying 25,000 tons of fuel has offloaded on Karachi port while another ship carrying 50,000 tons of oil will reach Karachi on Friday. They said that within next two or three days the problem will be resolved, adding that shutting down of Pak Arab Refinery (PARCO) was also a reason behind the current fuel crisis and the refinery will soon be put in order.
"We have directed other refineries to increase their production; in fact there is no petrol crisis, but panic among the masses is being created through rumours and every citizen is trying to buy more fuel," the official said.
The circular debt of Pakistan State Oil (PSO) is also one of the chief reasons behind current petrol crisis, which has crossed Rs 220 billion against power sectors as the company does not have enough money to clear pervious Letter of Credit (LC) payments to buy petrol.
According to details, the state oil company is out of money to buy petrol while people are facing problem due to its shortage. The PSO had asked the government to provide Rs 75 billion on an immediate basis so that the company could import fuel.
On January 2, PSO in a letter to the Ministry of Petroleum had warned the government of eminent fuel crisis, saying that if the government failed to compel power sector to pay outstanding dues of the national fuel supplier, the company will be forced to shut down its operations.
In the letter directed to the Secretary Petroleum, the PSO management stated that the company was facing serious financial crisis and was not in a position to open further LCs as its credit limit stand exhausted and LC lines of Rs 110 billion are blocked.
"In continuation of our written and verbal communications in respect of PSO's power sector receivables and their potential catastrophic effect on the viability of the company's business, it is further stated that in view of these receivables, which now stand at Rs198 billion, PSO has also incurred penalties of approximately Rs 250 million (for the period October 2014 to December 2014) on account of delayed payments of Rs 50 billion to banks, $1.8 million as demurrages (from July 2014 to November 2014) and suppliers' claims of about $6.4 million for damages due to delay in nomination of vessels and in opening of LCs," the letter added.
"As indicated during our meetings, we have placed tenders for cargoes for LSFO for supply to Kot Addu Power Company (Kapco), but these cannot be followed as LCs for the import cannot be opened because of the above restrictions. The amount of Rs 10 billion promised to PSO for Kapco, once received, be primarily used to import the relevant cargoes but given supplies currently available and the lead time of 20 days involved in sourcing further cargoes, it is likely that Kapco will experience stoppage. Also, given the request to increase the supply to Kapco from 1,500 tons to 4,500 tons per day, we would highlight that if increase is affected, the number of days coverage of LSFO for Kapco would reduce from 37 to 13 days. The alternate fuel for Kapco is HSD which can be supplied subject to advance payment and subject to the reservations regarding the overall availability of white oil highlighted below."
Similarly, as regards Hubco, based on the proposed increase from 5,000 tons to 7,000 tons and the existing stock position, the number of days coverage would reduce from 18 to 12 days. Further, as you are aware, Hubco uses a special grade of FO and there is a cargo of FO already imported (waiting for berth) for them which will be used only for Hubco. PSO can only continue to affect supplies to Hubco as long as these stocks last other power sector companies will also continue to be supplied until the stocks of FO are exhausted. Given that supplies are dwindling and the time involved in sourcing further cargoes, the supply of furnace oil will run dry unless funds are received immediately. This will happen much sooner if the requested increases in supply are affected, the letter added.
PSO also highlighted that the lack of financing (due to the power sector receivables) will also have an impact on white oil supplies as our inability to effect further borrowings or avail LC facilities until retirement of the existing LCs will extend to all future imports and including white oil imports. It is not possible to selectively honour only those LCs that relate to the import of white oil as any such practice would not be acceptable to the lending/LC opening banks, may attract the cross default clauses of our financing agreements, is not in line with prevailing practices and could lead to further restrictions on PSO's financing lines as well as reputational issues with suppliers and others.

Copyright Business Recorder, 2015

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