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| | GEO Business | | Circular debt curtails PSO profits | Updated at: 2319 PST, Friday, October 23, 2009
 KARACHI: The Board of Management, Pakistan State Oil (PSO), Friday declared cash dividend of Rs. 3 per share to its shareholders for the 1st quarter ended September 30, 2009.
The announcement came following the BoM review of the 1Q FY10 performance of the country’s largest oil marketing entity. Sardar Yasin Malik, Chairman, presided over the meeting.
The Board observed that the company has started FY10 on a positive note after going through a lean patch during FY09. The first half of FY09 saw a significant decline in the Company’s profitability mainly on account of a free fall in the international oil prices resulting in inventory losses to the company. In contrast, the first quarter of FY10 saw oil prices moving across a narrower band ranging between US$60/bbl to US$73/bbl.
The company’s sales revenue touched Rs. 201 billion compared to Rs. 222 billion in the corresponding period last year, the decline being mainly due to a reduction in retail prices of POL products across the country.
The Company was able to post improved quarterly after tax earnings of Rs 1.9 billion as compared to a loss of Rs. 8.4 billion during the same period last year. Here it is worth mentioning that on account of circular debt, the Company had to borrow from banks thereby incurring financial charges of Rs. 1.6 billion which dented the Company’s profitability during the period under review.
During the first quarter of FY10, PSO management made persistent efforts for recovering its receivables in the circular debt which crossed Rs. 100 billion during the reported period. As a result of all these efforts at the highest possible level, Power Holding (Pvt.) Limited, an entity of Government of Pakistan, issued Term Finance Certificates on September 18, 2009 amounting to Rs 82.4billion out of which PSO received Rs 41.3 billion thereby allowing the Company to make partial payments to refineries and retire LC payments against oil imports. Due to increase in supply of furnace oil to the power sector and delayed payments from them, the receivables are again growing on a daily basis.
In the period under review, the Company posted a growth of 30.4%in the Black Oil segment against the backdrop of increasing demand of furnace oil by the power sector which was fulfilled by PSO. In addition, a positive volumetric growth of 26.5% and 3.8% was registered in Mogas and JP1 respectively. However, in HSD, the Company experienced negative growth of 13.5% as industry figures also show a downward trend during the reported period.
PSO maintained its leadership in the White and Black Oil market segments with market shares of 55.3% and 89.4% respectively. Overall, the market share for the Company stood at 72.1% at the end of the quarter.
During the quarter, PSO signed a Fuel Supply Agreement (FSA) with Northern Power Generation Company Limited (NPGCL), a subsidiary company of the Pakistan Electric Power Company (Private) Limited (PEPCO), for fulfilling Furnace Oil and HSD requirements of all the power stations of NPGCL.
In the backdrop of the current energy crisis, this is a significant achievement which will help PSO in establishing consistency and smoothness in operations and correspondingly allow PEPCO to manage the demand and supply of the energy requirements of the country. The signing of this FSA further ensures consolidation of the Furnace Oil business.
The period also witnessed the signing of a Memorandum of Understanding (MOU) between PSO and Pakistan's largest LPG producer, Associated Group (AG) for the development of a sustainable LPG Auto-gas market. Under the MOU, it is envisioned that AG will establish LPG retail infrastructure at PSO retail outlets and provide the product year round at competitive prices.
LPG was legalized as an automotive fuel in 2005 but as yet, no LPG Auto-gas station has come online in Pakistan. Currently, consumers of LPG for automotive use rely on dangerous and illegal LPG decanters.
Formalisation of the retail channel will ensure the implementation of globally applicable safety practices as well as help stabilise prices. |  |
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