PSO advocates equity swaps as sole solution for circular debt issue

They propose swapping PSO's receivables with government-owned assets as the optimal solution

Pakistan State Oil (PSO), the nation’s largest oil-marketing company, asserts that an equity swap remains the sole viable method to address its circular debt obligations. This stance was articulated during PSO’s corporate briefing, detailed by brokerage firm Topline Securities, which attended the session on Monday.

According to Topline Securities, PSO’s management views equity swaps as the most feasible approach, given the government’s constrained fiscal position. They propose swapping PSO’s receivables with government-owned assets as the optimal solution.

“The management perceives this as the only viable option,” Topline Securities reported.

As of June 2023, Pakistan’s circular debt in the power and gas sectors had reached Rs4.6 trillion ($17 billion), equivalent to approximately 5% of GDP, according to the IMF. This debt arises from unpaid dues along the power sector chain, starting from consumers to distribution companies, which owe power plants that, in turn, owe PSO for fuel supply.

Given the government’s significant ownership stakes in these entities, resolving the debt has proven challenging amid fiscal constraints.

Earlier discussions by PSO Managing Director and CEO Syed Muhammad Taha indicated ongoing talks with the government regarding acquiring stakes in public sector energy firms to offset the debt owed to PSO, including by entities like the national airline.

“Through competitive bidding, we aim to acquire stakes that will offset our receivables,” Taha stated.

Topline Securities also highlighted PSO’s liquidity situation, expecting improvements due to timely LNG receivables and recent hikes in consumer gas prices. PSO’s receivables break down with Rs500 billion from SNGPL, Rs150 billion from GENCO, Rs27 billion from HUBCO, and PIA owing Rs810 billion in total.

Looking ahead, PSO plans to enhance its operations by establishing electric charging stations, diversifying into fintech, NBFC, and renewable energy sectors, developing new storages, investing in a white oil pipeline project in northern Pakistan, and implementing automation and digitization across its retail outlets and facilities.

PSO boasts a robust network comprising 3,528 retail outlets, 19 depots, 14 airport refueling facilities, operations at two seaports, and Pakistan’s largest storage capacity of 1.14 million tonnes.

Monitoring Desk
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