PSO proposes debt-for-equity swap in public sector companies

KARACHI:

Pakistan State Oil (PSO), the country’s largest oil marketer, says it is in talks with the government on a plan to acquire stakes in public sector energy companies and offset the mounting debt it owes to companies such as Pakistan International Airline (PIA).

Stopping the build-up of outstanding debt in Pakistan’s electricity sector, and eventually settling it, is a key concern of the International Monetary Fund, with which Islamabad is starting talks this month on a new long-term loan deal.

“Everything will be done through competitive bidding and we will participate and if we win, the stakes will be offset against (PSO’s demands),” said Syed Muhammad Taha, managing director and chief executive officer of the state-backed PSO.

“This is our proposal and this is under consideration, so we are working with the government,” Taha said in an interview on Wednesday with Reuters, which is the first to report the plan.

The federal government, with about 25%, is PSO’s largest shareholder, but private shareholders own the rest.

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Government officials, including the oil minister and the information minister, did not respond to a Reuters request for comment.

Total revolving debt in Pakistan’s power and gas sectors stood at 4.6 trillion rupees ($17 billion), or about 5 percent of GDP by June 2023, the IMF says.

Circular debt is a form of public debt that arises in part from failure to pay fees along the electricity sector chain, starting with consumers and moving to distribution companies, which are owed by power stations, which then must to pay PSO fuel supplier.

The government is either the largest shareholder or the outright owner of most of these companies, making it difficult to resolve debt as fiscal austerity leaves it strapped for cash.

Among other steps being sought by the IMF, Pakistan has raised energy prices to stop the accumulation of debt. But the accumulated amount has yet to be resolved.

Taha said the IMF’s reforms have helped the sector by strengthening creditors’ ability to pay, which will continue to improve.

PSO’s total claims from government agencies and autonomous bodies amounted to 499 billion rupiah ($1.8 billion), the largest share owed by gas provider Sui Northern Gas ( SUIN.PSX ), whose largest shareholder is the government .

PSO’s annual report last year said the debt crisis was a serious issue for it.

Taha said PSO had initially mooted the idea of ​​acquiring stakes or full ownership of assets such as the power plants at Nandipur in Punjab province and Guddu in Sindh, as well as the state-owned holding entity for power generation companies.

He also discussed equity stakes in profitable public sector companies such as Oil and Gas Development Co ( OGDC.PSX ), he added.

PIA Agreement

Taha said the PSO was also part of the broader settlement framework to privatize PIA, which would potentially include a “net asset swap” and a stake in the airline’s non-core assets such as property.

The government is putting on the block a stake ranging from 51% to 100% in debt-laden PIA as part of IMF-pursued public sector reforms.

In March, the media reported that the principal alone that PIA owed PSO for the fuel supply amounted to about 15.8 billion rupees ($57 million).

Taha added that he expects modest growth in demand for oil products as the economy opens up, thanks to lower interest rates and higher disposable income.

As economic conditions improve, he added, PSO is working with major strategic investors from China and the Middle East to upgrade and expand its refining business, Pakistan Refinery Ltd ( PKRF.PSX ) opens a new tab.

PSO has a network of 3,528 retail outlets in addition to 19 warehouses, 14 airport fueling facilities, operations at two seaports and Pakistan’s largest storage capacity of 1.14 million tonnes.