Pakistan State Oil (PSO) has voiced fear that circular debt related to the liquefied natural gas (LNG) supply chain, which has already piled up to Rs447 billion, will continue to increase.

In a recent corporate briefing on the company’s performance in first nine months of financial year 2022-23 and its operational dynamics, PSO highlighted concerns over the mounting LNG-related circular debt.

The state-owned oil marketing giant emphasised that while the recent increase in gas prices curtailed circular debt in the wellhead gas segment, the LNG segment continued to pose significant problems to the company’s future operations.

PSO’s receivables and payables position as of June 22, 2023 reveals significant outstanding amounts. It is awaiting payment of Rs447.29 billion from Sui Northern Gas Pipelines Limited and Rs180.89 billion from the power sector, including GENCOs/ Central Power Purchasing Agency, Hubco and Kapco.

Additionally, PSO’s receivables from Pakistan International Airlines and the government of Pakistan stand at Rs97.07 billion, including outstanding amounts from PIA and price differential claims related to the exchange rate differential on FE-25 loans.

On the other hand, PSO’s total payables amount to Rs211.92 billion. This includes payments to refineries such as Pak Arab Refinery, Pakistan Refinery Limited, National Refinery, Attock Refinery, Byco and Enar, as well as L/C, Kuwait Petroleum Company and LNG payments totalling Rs179.60 billion.

During the course of corporate briefing, the management acknowledged that the recent increase in gas prices helped reduce circular debt in the wellhead segment. However, they aired concern over the challenges posed by the LNG segment. Efforts are being made to address the situation, but the company anticipates continued difficulties in this area.

PSO stressed that it was actively engaged in discussions with the government, focusing on various aspects to ensure viability of the oil marketing business. These include negotiations for a reduction in turnover tax, which currently stands at 0.5% for oil marketing firms.

The company also plays a crucial role in adjusting foreign exchange losses as it provides calculations to the OGRA for inclusion in final product prices.

Furthermore, PSO revealed plans for expansion with an investment of $1.5-1.7 billion to double its refining capacity through PRL. It aims to enhance storage capacity with cost per ton ranging from Rs25,000 to Rs30,000, depending on the size of storage facility.

PSO’s 9MFY23 performance reflected a decline in after-tax profit due to inventory losses resulting from declining international oil prices, higher borrowing costs and a higher effective tax rate.

Published in The Express Tribune, June 24th, 2023.

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