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Saturday, November 18th, 2017

Morning Briefing for Sep 27, 2011 – Standard Capital

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by September 27, 2011 Brokerage

Karachi: PSO circular debt bubble about to burst

Break down in supply chain, fuel shortages and nationwide loading shedding are becoming major sources of concern as PSO receivables reach a daunting Rs155bn of which, around Rs131bn is the circular debt.

According to Standard Capital, it appears that this famous bubble of circular debt is on the verge of bursting. It has reached its limit and is creating enormous amount of problems for Pakistan State Oil as well as for other refineries. It has hurt PSO’s liquidity massively causing it to default on local refineries payments in this month, as a result of Rs131bn to PSO by the power sector. In fact the companies have continuously defaulted on its payment obligations hence hampering PSO’s ability to meet its creditors’ payments.

This delay in payments to refineries has, in turn, affected local production which is a sign that if not taken drastic measures immediately, Standard Capital’s country would suffer severe shortage of fuel causing prices of petroleum products to reach sky high.

Moreover, the deteriorating liquidity of PSO is making it difficult for it to meet its international obligations, for which the company is struggling very assiduously as any default on this end would disturb supplies which would then take months to resume, thus creating a gap in imports as well.

Hence, it is a dire need for the company to receive its payments as any further delays in the near future would cause fuel cargoes to be deferred, as PSO has utilized all its resources for financing future product supplies. As far as the local production of fuel oil is concerned, it is already in melancholy and imports are needed to curb the supply shortages to avoid increased load shedding.

In a nutshell, PSO needs to receive its rightful share of cash in the nearest future to avoid further hindrances in local production and import of fuel oil, to evade the severe scarcity of the concerned product, rising prices and intense load shedding; before it gets bankrupt.

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