KARACHI: Pakistan State Oil (PSO) has announced plans to secure foreign debt to finance a significant portion of its planned $1.5-2 billion investment in Pakistan Refinery Limited (PRL). The state-owned oil marketing company’s receivables have surged to Rs810 billion, primarily due to circular debt and late payment surcharges.
During an analyst briefing on the financial accounts for the first nine months of FY24, PSO officials outlined the company’s strategy to diversify its business by establishing electric charging stations and venturing into financial and renewable energy sectors. These initiatives aim to boost economic activities and increase earnings.
PSO also intends to expand its oil storage capacity from the current 20-day reserves and enhance its oil pipeline network in northern Pakistan to reduce road transportation of oil. However, demand for premium petroleum products dropped significantly in the outgoing fiscal year due to price hikes and an overall industrial slowdown.
Fabeeha Ali Khan, an Energy Analyst at Optimus Capital Management, reported that PSO’s planned $1.5-2 billion investment in refinery upgrades will be largely financed through foreign borrowing. The cost of PRL’s front-end engineering design (FEED) study is estimated at Rs12 billion, with completion expected by October 2024.
PRL, a subsidiary of PSO, has initiated the refinery expansion and upgrade project (REUP) to double its crude processing capacity to 100,000 barrels per day and increase the production of premium products, including Euro-V petrol and diesel. The project is slated for completion by the end of 2028.
Myesha Sohail, an Energy Analyst at Topline Research, noted that 60% of PSO’s total borrowing is currently denominated in US dollars. The company borrows dollars from banks, with exchange gains or losses borne by the government of Pakistan. She also highlighted that 60% of PSO’s total borrowing is FE-25 borrowing.
Khan further explained that PSO’s trade debts, including late payment surcharges, stand at Rs810 billion, with over Rs500 billion owed by Sui Northern Gas Pipeline Limited (SNGPL). Following discussions in February 2024, PSO does not expect further debt accumulation from SNGPL regarding RLNG.
Sohail added that other receivables include Rs150 billion from power generation companies (GENCO) and Rs27 billion from The Hub Power Company (HUBCO) and Pakistan International Airlines (PIA). PSO’s liquidity condition is expected to improve due to timely payments of LNG receivables amid rising consumer gas prices.
PSO’s diversification and expansion plans include automation and digitization at its locations and retail outlets. Liquid oil consumption in Pakistan fell from 13 million tonnes in the first nine months of FY23 to 11.48 million tonnes in the same period of FY24, an 11.7% decline. HSD volumes declined by 249,000 tonnes, and PMG volumes fell by 302,000 tonnes, mainly due to lower industrial demand and smuggling.
Furnace oil (FO) usage also saw a decline of 982,000 tonnes as its usage in electricity generation has significantly reduced. Management expects a slight year-on-year increase in oil consumption in FY25.
PSO reported a 6% rise in sales to Rs2.67 trillion and a 30% increase in profit to Rs13.4 billion in the first nine months of FY24. In the third quarter of FY24, earnings per share (EPS) stood at Rs12.03/share, bringing the nine-month EPS to Rs28.54/share. Management described inventory losses as a ‘zero-sum game,’ with a minimum stock of 20 days leading to inventory gains or losses.
Story by Salman Siddiqui
