Equity swap only option to address circular debt issue, says PSO

The management of Pakistan State Oil (PSO), the country’s largest oil-marketing company (OMC), believes equity swap remains the “only viable” option to settle its circular debt balance amount.

The development came during PSO’s corporate briefing, notes of which were issued by brokerage house Topline Securities, which attended the session, on Monday.

As per Topline, the management of PSO suggested equity swaps as it believed that the “government doesn’t have cash so the only solution to settle a circular debt balance amount is to swap PSO’s receivables amount with the GOP assets”.

“The management takes this as the only viable option,” it said.

Total circular debt in Pakistan’s power and gas sectors stood at Rs4.6 trillion ($17 billion), or about 5% of GDP by June 2023, the IMF said.

Circular debt is a form of public debt that stems in part from failure to pay dues along the power sector chain, starting with consumers and moving to distribution companies, which owe power plants, which then have to pay fuel supplier PSO.

The government is either the biggest shareholder, or outright owner of most these companies, making it tough to resolve debt as fiscal tightening leaves it strapped for cash.

In an interview in May, PSO Managing Director and CEO Syed Muhammad Taha had also stated that the entity is in talks with the government on a plan to acquire stakes in public sector energy companies and offset mounting debt it is owed by firms such as the national airline.

“Everything will be done through competitive bidding and we will participate and if we win, the stakes will be offset against (PSO’s receivables),” Taha stated back then.

“That is our proposal and this is under consideration, so we are working with the government.”

Meanwhile, Topline, in its briefing on Monday, shared that PSO management highlighted that the company’s liquidity condition is likely to improve due to timely payment of LNG receivables amidst a sharp increase in consumer gas prices.

“Party wise, receivables from SNGPL are Rs500 billion, followed by Rs150 billion from GENCO and Rs27 billion from HUBCO and PIA. Total receivables of PSO amount to Rs810 billion,” read the report.