PSO to be the major beneficiary of action against smuggled petroleum products from Iran

January 15, 2020 (MLN):  The recent buzz to curb smuggling and business of Iranian’s petroleum products in Pakistan would prove to be a positive trigger for the OMCs.

Due to incompetence and negligence of law enforcement agencies (LEA), Federal Tax Ombudsman (FTO) directed Federal Board of Revenue to form a Joint Action Taskforce to control the smuggling of petroleum products via Baluchistan border area affecting colossal losses to government revenue and constant danger to life and people’s property.

To recall, in FY19, the smuggled products amounted to about 11% of POL products sold in the country as per news flow’s estimation, highlighted by the research report of BIPL securities.

According to the research report by BIPL, any action by the FBR to curb smuggled products would grasp the significance of the OMCs whereby PSO would come as a major beneficiary. Any action against smuggling could boost PSO’s bottom line earnings with the assumption that the company maintains its market share at the current level.

The report underlined that PSO has a receivable of Rs 28bn on exchange losses incurred on FE-25 loans (on foreign borrowings) during the past year, resulting in depreciation of PKR.

In line with exchange losses, ECC, in a recent meeting, asked the ministry of finance to come up with more possibilities to improve the company’s cash flow position by paying off this amount. However, it is unlikely to be disbursed any cash in FY20 as MoF does not have the fiscal space currently. But it is expected that it could be made in the next year’s budget, revealed research report.

The research expects that the company’s liquidity position might improve on the back of lower finance cost if only PSO is repaid Rs 28 billion on account of FE-25 exchange loss in the upcoming budget.

On the other hand, the shift of circular debt generation to LNG from FO has reduced PSO’s direct exposure from power sector whereby gas distribution companies acting as the intermediary. Thus, PSO is not the only to bear the burden; its partners for sharing circular debt burden are OGDCL and PPL, resulting in a reduction of accumulation of receivables on PSO’s books, the report highlighted.

In this regard, PSO will likely to continue making recoveries on outstanding receivables from the power sector to the tune of Rs1.3bn per month, report anticipated. On the contrary, it is expected that receivable balance to continue to build in the LNG sector, though, it is anticipated its quantum to be lower i.e. Rs0.6bn per month which would improve PSO’s working capital position.

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