Economic Coordination Committee (ECC) of the Cabinet which is scheduled to meet on Wednesday (tomorrow) will approve measures to improve financial position of Pakistan State Oil (PSO) and release of Rs 50 billion by Power Division, sources close to Minister for Petroleum told Business Recorder.
Giving details, the sources said, ECC in its meeting held on August 29, 2018 while considering a summary on receivables of Pakistan State Oil (PSO) from power and other sectors on the potential risk of disruption in supply chain of petroleum products by Petroleum Division constituted a committee under the chairmanship of Secretary Planning, Development and Reforms (PD&R) comprising Secretaries Petroleum, Power and Finance Divisions and Managing Director PSO as members to review the fuel supply situation in the country keeping in view their monthly requirements and stock availability. The ECC further directed that the Power Division should ensure that whatever relief is provided to the IPPs, a significant amount is transferred to PSO to clear its outstanding dues on account of supply of fuel.
The committee in its meeting held on September 26, 2018 discussed different issues which are summarized as follows: (i) The PSO and Power Plants (i.e. Thermal Power Stations (TPS), Muzaffargarh, Hubco, Jamshoro and Kapco) have commercial Fuel Supply Agreements (FSAs), however, the power producers are at default of making payments resulting in an outstanding amount of Rs 272.5 billion as of September 24, 2018. PSO will not be able to arrange supplies without payment as per FSAs, which may lead to disruption of fuel oil supply chain; (ii) the future demands for September, October and November provided by Power Division require Rs 83 billion at current market rate. As PSO has already crossed its bank borrowing limit of Rs 75 billion, it is not in a position to arrange future fuel supply unless it receives advance payment; (iii) the quarterly demand ( Sep-November, 2018) for furnace oil forwarded to Petroleum Division/ PSO by Power Division may fluctuate due to seasonal variations and improved gas/LNG supply to power plants; (iv) in 2015 a seven-day credit mechanism was agreed by the Power Division with the Petroleum Division and PSO for payment which is not being honoured and as a result, there is principal default of Rs 54 billion on that account by the Power Division. Moreover, on June 26, 2018, it was agreed that Power Division will consider release of Rs 50 billion to PSO on immediate basis which is still awaited; (v) an amount of Rs 200 billion has been provided to the power sector during March-April 2018 for which the financing cost for the first six months will be borne by the Finance Division; (vi) Power Division has yet not reconciled the pending subsidy claim of approximately Rs 140 billion pertaining to AJ&K, Industrial Support Packager (ISP), FATA and Agriculture Tubewells in Balochistan and; (vii)) the PSO''s proposed draft options package includes increasing daily allocations from Pepco collections to 40 per cent (present 14 per cent), FBR to facilitate direct payments to PSO and releasing LNG payment with 10 days to be addressed at appropriate forum.
The summarized fuel stock position and monthly requirements (Sep-Nov, 2018) as provided by the Power Division) indicates that the overall fuel stock of HSFO available with PSO, refineries and power plants requirements and for LSFO is sufficient for 23 days for Kapco power plant. As per the fuel supply agreements, Hubco and Kapco power plants are required to maintain fuel stock. The PSO stocks of 164,653 MTs include 55,138 MTs LSFO which is exclusively for supply to Kapco, subject to advance payment. As regards 109, 515 Mts HSFO, this stock is also allocated to cash customers of PSO particularly K-Electric.
After threadbare deliberations on this issue, the ECC submitted the following recommendation for the ECC, which are expected be considered on Wednesday (tomorrow): (i) To keep the future quarterly supply of fuel oil to the power plants by PSO, the earlier commitment on June 26, 2018 for releasing of Rs 50 billion to PSO would be honoured by the Power Division; (ii) power plants/Power Division will maintain fuel inventory as per fuel supply agreements i.e. 13 days and 21 days by Hubco and Kapco respectively; (iii) Power Division will review the quarterly (Sep-Nov, 2018) demand forecast and firmed up demand will be forward to Petroleum Division/ PSO on immediate basis; (iv) for the quarter (Sep-Nov,2018) payment requirement of Rs 83 billion for fuel supply, Power Division will provide Rs 55 billion to PSO from daily collections during the same quarter on pro rate basis without fail and; (v) Ministry of Energy (Petroleum Division) should consider PSO''s proposed options to resolve the issue of receivables and put up to appropriate forum for consideration.
PSO has also emphasized for advance payment of Rs 24 billion by CPPA-G on account of six LNG cargoes and Rs 22.1 billion by SNGPL on account of receivables.
Meanwhile, Kot Addu Power Plant has revealed to the Power Division that LSFO stock at Kapco has been depleted completely and PSO is not delivering fuel due to their payment despite 60,000 MTs of products available at Karachi and Lal Pir depot. Gas allocation to the plant has been reduced to nil since October 16, 2018 because of reduced supply from the terminal.
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