Pakistan State Oil, the country's biggest oil marketing company, has decided not to reduce supplies of jet fuel by half to Pakistan International Airlines following a part payment and assurances that the remaining outstanding amount would be cleared in a phased manner, a PSO spokeswoman said Wednesday.
"We have received a check for Pakistan Rupees 100 million ($1.2 million) from the national carrier. Hence we decided not to cut supplies from today [Wednesday]," the spokeswoman said.
As for rest of dues of Rupees 1.09 billion, PSO will receive payment on weekly basis, the spokeswoman added. It was also decided that future sales of jet fuel would be done on cash basis, the spokeswoman said.
On Tuesday, PSO had threatened to cut jet fuel supplies to PIA by half from Wednesday if it failed to start clearing its dues.
PSO supplies around 700,000-800,000 liters/day of jet fuel worth Rupees 50 million to PIA, she said.
PSO is facing its worst financial crisis as Pakistan's power utilities owe it Rupees 150 billion. The company has requested the ministry of finance to immediately release Rupees 40 billion so that it can make payments against letters of credit for oil imports.
PSO has to pay nearly Rupees 90 billion to refiners such Attock Refineries, National Refinery, Pakistan Refinery and PARCO, while has to pay around Rupees 47 billion to Kuwait Petroleum and other international suppliers.
Pakistan's oil sector has been caught in a spiraling circular debt since the middle of 2008. Circular debt refers to a situation under which state-held utilities default on payments to oil marketing companies. These companies are then unable to pay refiners their dues, who then have trouble financing their crude oil purchases and running their plants.
Annual demand of petroleum products in the country is about 20 million mt (400,000 b/d), of which only 13% is met through local resources, while the balance 87% is imported. For fiscal year 2009-2010 (July-June), the import bill for crude and refined products was around $10 billion.
