PSO proposes exchanging debt for shares in public sector companies – Business

Pakistan’s state-owned oil company (PSO) said it was 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 country’s airlines.

Stopping the build-up of unresolved debt across the country’s energy sector and finally settling it is the main concern of the International Monetary Fund (IMF), with which the government will begin talks this month on a new long-term loan agreement.

“Everything will be done through competitive bidding, 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 the state-backed oil marketing company.

“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 Reuters.

The largest shareholder of PSO is the government with approximately 25 percent. share, but the rest is held by private shareholders. Government officials, including the ministers of petroleum and information, did not respond to: Reuters request for comment.

According to the IMF, the total circular debt in Pakistan’s power and gas sectors by June 2023 was 4.6 trillion rupees, or about 5% of GDP.

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 lack of cash.

Among other steps sought by the IMF, the government raised energy prices to stop debt mounting. 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, the largest portion owed to gas supplier Sui Northern Gas, of which the government is the largest shareholder.

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

Taha said PSO had initially mooted the idea of ​​acquiring stake or outright ownership of assets such as power plants in Nandipur in northern Punjab province and Guddu in southern Sindh, as well as a government-owned holding entity for power utilities.

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

Agreement with PI

Taha said the PSO also forms part of a broader settlement framework to privatize Pakistan International Airlines (PIA), which potentially includes a “pure asset swap” and stakes 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 investing from 51 to 100 percent of shares in the indebted carrier.

In March, the media reported that the PIA director himself owed around Rs 15.8 billion to PSO for fuel supplies.

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 refineries in Pakistan.

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