PSO is in talks with the government regarding the purchase of shares in public energy companies

“Everything will be achieved through competitive bidding,” says the PSO CEO

A man drinks water from a dispenser at a Pakistan State Oil gas station in Peshawar, October 2, 2017. —Reuters

KARACHI: Pakistan State Oil Company (PSO), the country’s largest crude oil seller, says it is in talks with the government on a plan to acquire stakes in public sector energy companies and offset rising debt incurred by companies such as the national airline.

Stopping the build-up of unresolved debts in Pakistan’s energy sector and finally settling them is a major concern of the International Monetary Fund, with which Islamabad is entering talks this month on a new long-term loan agreement.

“Everything will be done through competitive bidding and we will participate in it and if we win, the bid will be deducted from (PSO dues),” said Syed Muhammad Taha, managing director and chief executive of state-backed PSO.

“This is our proposal and it is being considered, which is why we are cooperating with the government,” Taha said in an interview on Wednesday Reuterswho is the first to report the plan.

PSO’s largest shareholder is the Government of Pakistan, with about 25% of the shares, but the rest is held by private shareholders.

Government officials, including the minister of petroleum and the minister of information, did not respond to a Reuters request for comment.

Total circular debt in Pakistan’s power and gas sectors was 4.6 trillion rupees ($17 billion), representing about 5% of GDP by June 2023, says the IMF.

Circular debt is a form of public debt that is partly the result of non-payment of contributions throughout the electricity sector chain, from consumers to distribution companies that are indebted to power plants, which then have to pay fuel suppliers as a public service obligation.

The government is either the largest shareholder or outright owner of most of these companies, making debt repayment difficult as fiscal tightening creates a shortage of cash.

Pakistan, among other things, raised energy prices to stop the debt from building up. However, the accumulated amount still needs to be settled.

Taha said IMF reforms have helped the sector by increasing creditors’ payment capacity, which will continue to improve.

PSO’s total receivables from government agencies and autonomous bodies amounted to 499 billion rupees ($1.8 billion), the largest portion owed to gas supplier Sui Northern Gas, whose largest shareholder is the government.

Last year’s PSO annual report shows that the debt crisis is a serious problem for it.

Taha said PSO had initially floated the idea of ​​acquiring stake or outright ownership of assets such as power plants in Nandipur in Punjab and Guddu in Sindh, as well as a government-owned holding company for power generation companies.

He added that shares in profitable public sector companies such as Oil and Gas Development Co were also discussed.

Agreement with PI

Taha said the provision of payment services also forms part of a broader settlement framework for the privatization of Pakistan International Airlines, which potentially includes a “pure asset exchange” and interests in non-core assets of the airline, such as real estate.

As part of the public sector reforms sought by the IMF, the government is blocking shares from 51% to 100% in the indebted PIA.

In March, media reported that the contractor itself owed PIA PSO for fuel supplies amounting to approximately 15.8 billion rupees ($57 million).

Taha added that he expects demand for petroleum products to moderate moderately as the economy opens up, thanks to lower interest rates and higher disposable incomes.

He added that as economic conditions improve, PSO is working with large strategic investors from China and the Middle East to modernize and expand its refinery, Pakistan Refinery.

PSO has a network of 3,528 retail outlets, 19 warehouses, 14 airport refueling points, operations in two seaports and the largest storage capacity in Pakistan of 1.14 million tonnes.