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

Author: Ariba Shahid

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

KARACHI, – Pakistan State Oil, the country’s largest oil seller, says it is in talks with the government on a plan to acquire stakes in public sector energy companies and offset rising debt incurred by companies such as the country’s airlines.

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Stopping the build-up of unresolved debts in Pakistan’s energy sector and finally settling them is a major concern of the International Monetary Fund, with which Islamabad is entering talks this month on a new long-term loan agreement.

“Everything will be done through competitive bidding and we will participate in it and if we win, the rates will be compensated,” said Syed Muhammad Taha, managing director and chief executive of state-backed PSO.

“This is our proposal and it is being considered, which is why we are cooperating with the government,” Taha said in a Wednesday interview with Reuters, which first reported the plan.

PSO’s largest shareholder is the Government of Pakistan, with about 25% of the shares, but the rest is held by private shareholders.

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

Total circular debt in Pakistan’s power and gas sectors was 4.6 trillion rupees, representing about 5% of GDP by June 2023, says the IMF.

Circular debt is a form of public debt that is partly the result of non-payment of contributions throughout the electricity sector chain, from consumers to distribution companies that are indebted to power plants, which then have to pay fuel suppliers as a public service obligation.

The government is either the largest shareholder or outright owner of most of these companies, making debt repayment difficult as fiscal tightening creates a lack of cash.

Pakistan, among other things, raised energy prices to stop the debt from building up. However, the accumulated amount still needs to be settled.

Taha said IMF reforms have helped the sector by increasing creditors’ payment capacity, which will continue to improve.

PSO’s total receivables from government agencies and autonomous bodies amounted to 499 billion rupees, with the largest share held by gas supplier Sui Northern Gas, whose largest shareholder is the government.

Last year’s PSO annual report shows that the debt crisis is a serious problem for it.

Taha said PSO had initially mooted the idea of ​​acquiring stake or outright ownership of assets such as power plants in Nandipur in northern Punjab province and Guddu in southern Sindh, as well as a government-owned holding entity for power utilities.

He added that shares in profitable public sector companies such as Oil and Gas Development Co were also discussed.

PI AGREEMENT

Taha said the provision of payment services also forms part of a broader settlement framework for the privatization of Pakistan International Airlines, which potentially includes a “pure asset exchange” and interests in non-core assets of the airline, such as real estate.

As part of the public sector reforms sought by the IMF, the government is blocking shares from 51% to 100% in the indebted PIA.

In March, the media reported that the contractor itself owed PIA for fuel supplies amounting to approximately 15.8 billion rupees.

Taha added that he expects demand for petroleum products to moderate moderately as the economy opens up, thanks to lower interest rates and higher disposable incomes.

He added that as economic conditions improve, PSO is working with large strategic investors from China and the Middle East to modernize and expand its refining arm, Pakistan Refinery Ltd.

PSO has a network of 3,528 retail outlets, 19 warehouses, 14 airport refueling points, operations in two seaports and the largest storage capacity in Pakistan of 1.14 million tonnes.

This article was generated from an automated feed from a news agency, without any modifications to the text.