The financially-strapped Pakistan Electric Power Company (Pepco) has reportedly been asked by the Pakistan State Oil (PSO) to finalise the much awaited fuel supply agreement (FSA) for smooth supply of fuel to generation companies, sources in Petroleum Ministry told Business Recorder on Thursday.
"The PSO intends to finalise the FSA with Gencos, which will pave the way for a secured furnace oil supply chain for Pepco's thermal power stations," the sources quoted. PSO Managing Director Irfan Qureshi as saying in a letter to his counterpart in the Pepco.
A copy of the letter has also been sent to the Petroleum Secretary. Qureshi reiterated that the PSO with its unmatched infrastructure was the only fuel supplier, which had shown the resolve and commitment to meet the entire fuel oil requirement of the Pepco's Gencos in the past and was committed to do so in the future.
He, however, said that to achieve the objective of renewing and bolstering our commercial ties, a pragmatic approach would be required to settle certain core issues. He is of the view that with a consistent and regular trend of arranging and supplying imported low sulphar furance oil (LSFO), basic component of the pricing element needs to be addressed since a huge amount of over rupees three billion, which is concurrent, has accumulated. "The Pepco needs to liquidate this outstanding amount and formulate a framework for release of the apportioned amount on regular basis in the future," he said.
In another demand, Qureshi said the PSO intended to finalise the much awaited FSA with Gencos as it was catering to the needs of existing high volume of Genco stations and for additional power plants correspondingly required development of infrastructure, increase in road and rail fleet capacity, particularly tank wagons for which assured business volume was prerequisite for Pakistan Railways to effect fuel transportation agreement (FTA) with the PSO.
Besides this enhancement of the FOTCO Jetty capacity and its connectivity to Karachi Port are required for accommodating more furnace oil vessels to handle increase in imports. It is essential and urgent in nature that FSA with the Pepco (Gencos) is finalised pursuant to which allied activities can be undertaken.
Qureshi, however, buttered, the Pepco Managing Director by saying that "it is a matter of pride that both Water and Power Development Authority (Wapda) and the PSO, who are the largest public sector entities in the energy sector, were engaged in historical business ties since decades and even under the present challenging economic crisis, the PSO with its "vision to excel" had not only been making efforts to meet the fuel requirement of Gencos, but was also desirous of strengthening and augmenting its already cordial relationship with the Pepco.
A couple of days ago, the PSO conveyed to Gencos that due to the current financial crunch, owing to the accumulating circular debts, it was unable to continue to tender for importing LSFO. The PSO has been maintaining uninterrupted supply of LSFO to Kot Adu Power Company (Kapco) for the past several months.
It was only after an exchange of correspondence and exchange of discussions, an amount of Rs 14 billion was transferred to the PSO directly in March 2009 for adjustment against Kapco outstanding dues of Rs 25 billion. Since then no payment has been received and with the continuity of supplies, the outstanding has accumulated to over Rs 20 billion (inclusive of the LSFO-HSFO price differential amount).
Consequently, the PSO is unable to make payment to Attock Refineries Limited (ARL) as a result of which supply of local LSFO has been drastically reduced. At present, the major portion of LSFO supplies is imported. Nonetheless, the PSO, which is facing serious cash flow problems due to non payment by major fuel customers of the power sector, totalling Rs 80 billion inclusive of Kapco, is not able to procure the product through imports.
"We apprehend that the PSO will not be in a position to go for tendering process of LSFO cargoes anymore. We have already conveyed this to the WPPO with the request to arrange payment of the outstanding LSFO-HSFO price differential amount immediately," the sources quoted the PSO's top management informing the Petroleum Ministry.
The sources said that the PSO was of the view that it had taken this stand to save the utility from complete collapse/shut down as it was meeting 75 per cent POL requirements of the country. A couple of months ago, the government had floated term finance certificates (TFCs) to clear a portion of the inter-circular debt, but the current status of outstanding amount of Rs 80 billion against public sector power generation companies and Kapco was again a source of serious concern.