Govt gives another lifeline to PSO

KARACHI: Pakistan State Oil (PSO) is at the brink of international default. It owes a record-breaking amount of Rs 775 billion to Qatar of which Rs 498 billion was contributed by Sui Northern Gas Pipelines Ltd (SNGPL).

PSO imported 8-9 cargoes of Liquefied Natural Gas (LNG) every month. It needs to pay for the fuel it imports within 15 days, but it’s struggling to do so because of a huge amount of debt. 

PSO’s debt has also reached a record high of Rs 411 billion. Financial costs have increased by Rs 43 billion for the current fiscal year and Rs 73 billion for 2023-24 which would adversely affect its profitability. 

Besides, PSO also claimed that the Ministry of Finance was not releasing subsidies on time, which added to the financial woes of  the company. In the first week of January, the Economic Coordination Committee (ECC) had permitted the borrowing of Rs 50 billion with sovereign guarantees. However, the finance ministry took more than six weeks to provide a letter of comfort (LoC), a written document that provides assurance that the obligation will be met, 

At the ECC meeting held on Tuesday and  presided by Finance Minister Ishaq Dar,  the government approved extending sovereign guarantees for Rs 50 billion commercial borrowing to help PSO.

A sovereign guarantee is a promise made by the government to repay a loan taken out by a public entity, such as a state-owned company, if that entity is unable to repay the loan on its own. The government promises to step in and pay back the loan if the borrower can’t do so. This makes it easier for the public entity to borrow money, as the lender is more likely to lend if they have the assurance that the loan will be repaid.

An urgent meeting was held at the finance ministry before the ECC meeting. The meeting decided that SNGPL should be given a sovereign guarantee and LoC to borrow Rs 50 billion from the market for payments to PSO. This will help PSO pay its bills to its LNG suppliers and keep the supply chain going. The ECC has allowed a sovereign guarantee in favor of SNGPL to borrow the money immediately, according to an official statement.

However, PSO has reported that even with the Rs 50 billion commercial borrowing, its liquidity requirements have not improved significantly, and there is a risk of defaulting on international payment obligations.