PSO’s receivables likely to decline by around Rs32bn amid hike in POL prices

May 27, 2022 (MLN): Pakistan State Oil (PSO) receivables from the government for June 2022 will decline by around Rs32 billion in the wake of the government's latest key decision of increasing petroleum prices to unlock the much-needed IMF tranche.

Along with declining receivables, PSO’s liquidity position will also improve significantly. It is expected that this decision can have an Earning Per Share (EPS) impact of around 3-4% to FY22 earnings assuming delays in payment to the company and a rise in borrowings. Likewise, other OMCs will also experience a drop in receivables, a report by Topline Securities noted.

Meanwhile, it will also partially reduce the government subsidy amount which is estimated to be around Rs80bn per month and address concerns from an economic perspective.

Accordingly, it is likely to reduce the fiscal burden on the government which was taking a major hit as subsidies were estimated to cost around Rs120-140bn in May 2022, the annualized impact of 2% of GDP, the report added.

Above all, this hike in petrol prices will help pave way for the IMF program resumption as it had linked completion of the 7th review with the removal of fuel subsidies.

However, this increase in petrol prices will also have an inflationary impact where it is expected that a 20% increase in petrol prices will impact inflation by around 100bps.

The federal government on Thursday has decided to increase petroleum product prices by Rs30 per litre to meet IMF demand.

As per the announcement made by Finance Minister, the new price of petrol and High-Speed Diesel (HSD) will stand at Rs179.86 and Rs 74.15 per litre, while Kerosine oil and Light Diesel (LDO) will cost around Rs155.56 and Rs148.31 per litre respectively. The new prices will take effect from tonight May 27, 2022.

Earlier, the minister said that the IMF team emphasized the importance of rolling back fuel and power subsidies, which were given by the previous administration in contravention of its own agreement with the Fund. Govt is committed to reviving the IMF programme and putting Pakistan back on a sustainable growth path.

Copyright Mettis Link News