Tussle between power companies and oil supplier may worsen the energy crisis

Tussle between power companies and oil supplier may worsen the energy crisis

Islamabad: (Wednesday, May 23, 2012) A lingering tussle between the power companies and the major oil supplier of the country over advance payments may aggravate the energy crisis in the country as power producers have lately become
reluctant to buy petroleum products by opening letters of credit that may ensure prompt payments for oil supplies.

The new mechanism, if approved and adopted by the energy companies, will ensure smooth and sustained oil supply on cash rather than on credit and will thus curb the issue of circular debt that has marred the entire energy chain
for the past many years.

In order to facilitate the power producing companies, Pakistan State Oil (PSO), which is also the largest oil marketing company of the country, has started to open LCs for purchase of petroleum products from refineries after Pak-Arab
Refinery Company (Parco) refused to supply oil on credit.

Faced by this situation, PSO is now devising and opting the mechanism as its receivables, mainly from the large buyers, or say the power producers, have touched Rs 205.98 billion while it has to pay Rs 178.802 billion to local
as well as international fuel suppliers.

Commenting on this new mechanism of making advanced payments, an official of the Ministry of Petroleum and Natural Resources said, “The LC-backed system will force power companies to make advance payments to oil suppliers. There
will be no oil for the power sector if it does not make payments in advance.”

However, this is only one side of the picture as the power companies do not seem ready to adopt this new system of payments. Dwelling on this matter, a senior official at the ministry of water and power said, “The system, introduced
by PSO, can be successful only if the power sector accepts it and opens LC for oil purchase.”

However, the official also made it clear that the power companies virtually had no money to implement the LC-backed payment system.

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Posted by Fayyaz Yaseen on May 24 2012. Filed under Business, Pakistan. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry