Pakistan State Oil (PSO) – the only public sector oil marketing company – fits into the category of corporate entities that seem too big to fail. However, in the eventuality that that happens, its bankruptcy will not only shake the entire economy, but also take down many private banks with it, PSO Managing Director and Chief Executive Naeem Yahya Mir has warned.
“PSO is so interwoven into the economy of Pakistan that the effects of its bankruptcy will be felt in every part of the country, in both public and private sectors,” Mir told The Express Tribune in an interview.
His fears are not baseless: PSO is a cash-starved, trillion-rupee giant. It has been facing continuous cash flow problems over the last few years, owing mainly to the burgeoning circular debt in the energy sector.
“The biggest problem of Pakistan’s energy sector is the circular debt, because of which our energy crisis has deteriorated. It has to be controlled,” Mir said.
To finance its operations, PSO deals with many domestic banks. “I have taken their top executives into confidence, and asked them that they continue to support PSO because its financial health is very important for them too.”
And banks have understood. “Owing to the size of our business dealings, which are always in the billions of rupees, our banks cannot afford PSO’s bankruptcy. If PSO sinks, it will take them with it,” he stressed.
“When I joined PSO, its receivables were hovering around Rs250 billion. They have now come down to Rs110 billion because of our pain-staking efforts over the past months,” he claims.
“It was a big bubble, and I knew that if it burst, it would sink many financial institutions with it,” Mir told The Express Tribune.
Mir has over 21 years of experience in national and multi-national oil companies, with expertise in downstream operations including marketing, distribution, refining and shipping. The last post he held was that of technical adviser-international marketing at the Kuwait Petroleum Corporation.
“I am a technical person, and only a technical person can fix technical problems in an oil company like PSO. I know I am an expensive person to hire, but I think that that is not a bad trade-off if I can set the house in order and save PSO billions of rupees,” Mir said. The PSO MD believes that cost-cutting measures he took over the year will save PSO at least Rs8-9 billion annually.
“Allowing 2.7% oxygenate content in oil tenders, stopping the addition of detergent additives to motor gasoline and diesel, purchasing petroleum products from local sources and refineries and halting payment of war insurance premium on import of petroleum products will have positive far-reaching effects on PSO,” he said, outlining some measures he has taken.
PSO recently signed a memorandum of understanding (MoU) with the Government of Khyber-Pakhtunkhwa under which it will establish a state-of-the-art oil refinery in the province, which is expected to be commissioned by 2016-17. The refinery will be capable of produced 40,000 barrels per day (BPD) of refined oil.
Mir said the new refinery will not only help reduce the import bill, but also save billions in transportation costs (the crude oil used in this refinery will be locally produced, so there would be no cost in transporting oil from southern ports to the northern parts of the country).
Mir said Pakistan needs more refineries, as even after the new refinery is commissioned, the country will still face a supply shortfall of 160,000 BPD. Pakistan currently imports six million tons of fuel oil, 3.5 million tons of diesel, 1.5 million tons of petrol and 0.5 million tons of jet fuel every year.
“[And] Pakistan has to reduce its oil import bill,” he says.
Published in The Express Tribune, April 20th, 2013.
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