Rs669bn audit observations put PSO under AGP scanner

ISLAMABAD: The Auditor General of Pakistan (AGP) has raised audit observations amounting to Rs669.302 billion on Pakistan State Oil (PSO), including Rs472.033 billion identified as recoverable, while highlighting major financial, governance, procurement, operational and legal weaknesses during the audit of FY2023-24.

According to the audit report for the audit year 2024-25, the total audit observations of Rs669.302 billion comprise Rs472.362 billion relating to financial management, Rs182.620 billion governance-related issues, Rs11.238 billion procurement and project management issues and Rs3.082 billion legal and other issues. Of the total observations, Rs472.033 billion has been identified as recoverable.

The largest audit observation relates to the non-recovery of outstanding amounts from customers amounting to Rs467.708 billion. The audit observed that PSO's trade debts receivable from bulk consumers, retailers and card holders stood at Rs439.430 billion as of June 30, 2024. It further noted receivables of Rs25.805 billion from retailers despite the requirement of advance payments, Rs229.003 million from card holders despite expiry of payment deadlines, Rs2.068 billion pending against Pakistan National Shipping Corporation (PNSC), and Rs175.388 million recoverable from Southern Electric Power Company Limited despite a court decree issued in 2012.

The audit concluded that "due to slackness of the management recovery of outstanding amounts of Rs467,707.513 million could not be made," adding that delayed recoveries forced the company to rely on borrowings, increasing its finance cost by Rs12.557 billion from Rs43.410 billion to Rs55.967 billion during the year.

In its reply, PSO informed the audit that it had recovered Rs354.539 billion, representing about 81 percent of the pointed-out amount, while reconciliation of claims with PNSC was still under process. The Departmental Accounts Committee (DAC) directed the management to pursue recovery of the remaining outstanding amounts.

The audit also questioned PSO over non-execution of a tripartite agreement with SNGPL and SSGC, resulting in non-recognition of delayed payment surcharge amounting to Rs176.125 billion. According to the report, the agreement envisaged payment of LNG invoices within three days along with delayed payment charges at one-month KIBOR plus two percent in case of default. However, the agreement remained unsigned, resulting in non-recognition of Rs176.125 billion, including Rs78.577 billion relating to FY2023-24.

The audit observed that "the company could not claim surcharge from SNGPL on delayed payment primarily due to non-signing of agreement," while PSO simultaneously incurred Rs39.774 billion in financing costs because of delayed recoveries. The company replied that despite continuous follow-up for nearly eight years, the tripartite agreement had yet to be finalized.

Another significant observation relates to irrational transactions through PSO fuel cards amounting to Rs243.746 million. The audit observed that weak security controls enabled abnormal transactions, including individual transactions of Rs45.472 million and Rs27.513 million, whereas only Rs5.180 million worth of transactions was acknowledged by the customer. The audit concluded that "weak security features and lack of controls resulted in irrational transaction of Rs243.746 million."

PSO informed the audit that the matter had been referred to the Federal Investigation Agency (FIA), Rs122.400 million had been withheld, Rs20 million recovered from the transporter and Rs121.880 million deposited in a joint escrow account, besides introducing stronger security features for fuel cards.

The AGP also highlighted unjustified expenditure of Rs1.144 billion comprising Rs657.261 million paid as interest to local refineries and Rs487.027 million exchange losses. According to PSO, the additional financial burden arose due to liquidity constraints caused by receivables exceeding Rs500 billion from SNGPL and more than Rs180 billion from the power sector.

The report further pointed out that PSO retained Rs915.130 million under the Benazir Employees Stock Option Scheme (BESOS) despite Supreme Court directions and Finance Division instructions requiring transfer of the amount to the Federal Consolidated Fund along with surrender of 119,767,702 shares to the Federal Government. The DAC directed the company to complete the transfer within two months.

On operational safety, the audit observed that out of 10,121 active oil tank lorries transporting petroleum products across the country, only 4,416 complied with OGRA standards while 5,705 remained non-compliant. During the year, 28 accidents involving tank lorries were reported, of which 18 involved vehicles that did not meet OGRA's safety standards. The audit warned that operation of non-compliant vehicles "increases the chances of hazardous incidents."

The audit also found that 413 of PSO's 3,551 retail outlets were operating without valid Form-K licences issued by the Department of Explosives. The department confirmed licences for only 3,138 outlets. The audit held that the remaining outlets were operating without the mandatory approvals. PSO maintained that the matter was under reconciliation with the licensing authorities, while the DAC directed both sides to reconcile the record.

Procurement and operational issues also came under scrutiny. The AGP reported that PSO incurred demurrages of US$3.105 million, equivalent to Rs853.875 million, on 58 vessels due to delays in unloading petroleum products. While the audit attributed the losses to poor coordination and operational inefficiencies, PSO maintained that nearly 88 percent of the demurrage resulted from port congestion and circumstances beyond the company's control.

The audit further questioned procurement of High-Speed Diesel worth Rs8.837 billion from ENAR despite the supplier not holding an OGRA refinery licence and also highlighted a Rs809.422 million deemed duty issue requiring examination.

Other observations included non-recovery of liquidated damages amounting to Rs116.072 million from contractors due to delayed completion of three construction projects, slow implementation of retail automation despite a Rs97.818 million contract for installation of 850 dispenser control units, of which only 154 had been installed during FY2023-24, and delay in establishing the Skardu oil depot despite release of a Rs100 million government grant.

The audit also pointed to short withholding and non-payment of income tax amounting to Rs262.374 million, litigation involving Rs437.305 million in sales tax default surcharge, overcharging of Rs2.137 billion in sales tax from SNGPL due to inclusion of Sindh Infrastructure Development Cess, and non-transfer of Rs1.373 billion in unclaimed dividends to the Federal Government. It further observed that around 45 percent of PSO's shares continued to exist in physical form, increasing the risk of fraud and ownership disputes.

The AGP recommended expediting recovery of outstanding dues, strengthening financial and governance controls, ensuring compliance with statutory and regulatory requirements, improving operational safety standards, recovering losses from responsible parties where applicable, completing pending automation and infrastructure projects, and implementing corrective measures to address the weaknesses identified during the audit.