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PSO in dire straits as launch of Rs200bn bond delayed

ISLAMABAD: The delay in the launch of Rs200 billion Islamic bond to rescue the troubled energy sector has put the largest state-owned firm — Pakistan State Oil (PSO) — in dire straits with its receivables going beyond a record Rs364bn.

A senior petroleum ministry official said receivables from the power sector alone had touched Rs265bn as of Jan 18 because of primary circular debt. In addition, a second tier circular debt worth Rs51bn has built up against the Sui Northern Gas Pipelines Limited (SNGPL) due to non-payment of LNG supplies, affecting the entire gas sector.

Moreover, about Rs48bn are payable to the PSO by the Pakistan International Airlines (PIA) and the federal government on account of price differential claims and exchange rate loss.

The country’s largest fuel supplier has been pressing the petroleum and finance division for the release of at least Rs100bn to ensure smooth supplies of LNG and other petroleum products. About Rs43bn worth of letters of credit to foreign suppliers have become due, besides around Rs15bn to local refineries.

Finance ministry and consortium of six banks agreed to launch Sukuk Bond by mid-Jan to bail out power sector entities

“Instead of releasing funds as promised, the government is grilling PSO for ordering LNG cargoes during low tide season,” said an official, adding that Finance Minister Asad Umar had promised two weeks ago that the funds would reach the PSO in a week. “That still remains a dream after two weeks,” he said.

Sources said two factors had caused the delay in fund raising. First, the finance ministry was expecting the launch of Rs200bn worth of Islamic Sukuk Bond no later than Jan 10-15 based on a decision taken by the Economic Coordination Committee of the cabinet early last month. This did not materialise due to last-minute differences over return on profit following recent hikes in the policy rate of the State Bank of Pakistan.

Second, the sources said, former SNGPL managing director Amjad Latif had given a commitment to arrange around Rs25bn with the approval of its board of directors through its own borrowing to scale down LNG payables to the PSO. But Mr Latif lost his job on the orders of the prime minister on the issue of gas shortage and the SNGPL did not take up the borrowing option for approval.

This coincided with refusal of the master of Qatargas’s ship carrying LNG to enter the channel because of inadequate draught amid low tide. The port authorities failed to convince the ship operators to enter Port Qasim for LNG unloading and re-gasification for a couple of days as the shipper declined to risk security of the ship in violation of standard operating procedures notwithstanding past precedents.

The finance ministry and a consortium of six banks had in December last year agreed to launch the Rs200bn Pakistan Musharqa Sukuk Bond by the middle of January to bail out power sector entities. The bond was aimed at providing funds to the Power Holding Private Limited (PHPL) — an asset-less, state-owned shell entity.

The government had agreed to create a special desk at the SBP for coordinating tasks with the banks participating in the transaction, mainly for maintaining accounts and ensuring seamless repayments. The consortium led by Meezan Islamic Bank comprised Bank Islami Pakistan, Faysal Bank Limited, MCB Islamic Bank, Dubai Islamic Bank and Al-Baraka Bank.

The financing will be declared statutory liquidity ratio eligible by the government and the SBP. The assets, belonging to a number of public sector power companies, will remain mortgaged in favour of the financiers and the bond will be backed by a government guarantee. It was agreed at the time that the bond will have a 10-year maturity at a rental return of a base rate plus a margin of 100 basis points and Takaful cost.

The base rate will be defined as six-month Karachi Interbank Offered Rate (Kibor) asking side prevailing on the base rate setting date, subject to a floor and cap.

The bond will entail half-yearly rental repayments from the date of drawdown and repayment will be made directly by the central bank on the basis of a budgetary allocation by the finance ministry, which will issue standing instructions to direct debit for return and maturity repayment at the SBP counter.

The funds will be used to service payables of the oil and gas sector that is beset with a circular debt of more than Rs1.3 trillion, including a fresh flow of about Rs700bn. The government has already built up syndicated term finance facilities of Rs607.03bn in the name of PHPL for funding repayment liabilities of distribution companies (Discos). The conventional banks are not ready to commit more funds to the sector. To deliver on this, the boards of directors of all Discos and generating companies had agreed to pledge the properties/assets in the trust for banks

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