PSO receivables increase to Rs 180 billion

financial valuations of PSO is futile…

Pakistan’s biggest petroleum handler, Pakistan State Oil (PSO) is on the verge of financial collapse since its outstanding dues from various ‘energy sector’ entities has reached to the extent of Rs 180bn (which is highest in 4‐years). It seems that no bailing out is forth coming from ministry of finance (MoF). Actual cash flows of the entity have gone negative due to incidence of more short term loans to keep the daily operations afloat. It is imperative that the calculation of DCF value of such an entity may be a

futile exercise and thus tantamount to mislead investors.

Liabilities swelling…

When PSO is not receiving due payments, it is hard for their treasury to arrange payments for refineries. Right now PSO has to pay Rs172bn of many companies that also include international principals thus painting a negative image outside.

PSOs’ total payables to local refineries have reached Rs 75bn of which it has to pay Rs

35.7 to unlisted Pak‐Arab Refinery Limited (PARCO),Rs 10 bn to Pakistan Refinery

Limited (PRL), Rs 8bn to National Refinary Limited (NRL) , Rs 18 billion to Attock

Refinery (ATRL), Rs 2 bn BYCO petroleum etc.

List of defaulters

The power sector is a major defaulter of PSO, which owes Rs 153bn such as poorly managed state run WAPDA that owes Rs 39bn and independent power producers such as HUBCO that owes Rs 79bn & KAPCO that owes Rs 35bn. Public utility KESC also owes

4.55bn. Among all these companies that owe, it is WAPDA which is responsible for this

awful crisis since it is the main culprit behind whole crisis. Had WAPDA being managed properly and paid to power entities, this crisis of huge proportions could not have happened.

Some of the other receivables include Rs 1.3bn over price differential claim (PDC) on

HSD & Rs 3bn on HSFO.

Some likely repercussions…

We see this receivable to be ballooned since government is entangled in multiple crises ranging from fiscal constraints to political fallout. It is imperative that investors should see real worth of such companies that used to be cash rich till 2007‐8 but since trapped into vicious cycle of ‘circular debt’. The non resolution of issues means that investors should wait while making an entry into the script. Couple of months back there was some resolution coming wherein banks were about to bailout energy companies from this ‘circular debt’; however, no solution is inside.

Here we prefer Attock Petroleum (APL), a small Attock Group oil handler, over PSO. Wherein we consider SHEL as a weak business model owing to their exposure in depleting CNG business.

http://www.scstrade.com/research/Research%20Reports/General/PSO%20receivables%20increase%20to%20Rs%20180%20billion.pdf

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