'Govt plans Sukuk to clear circular debt

KARACHI - The first half of the Financial Year 2010 was a turnaround for Pakistan State Oil (PSO) as the company jolted its way from the troughs of FY09 to sublime levels of profitability by announcing a robust Profit After Tax (PAT) of Rs3.18b, with Earning Per Share of Rs29.64, against a loss of Rs10.05b in the first half of last year. The 1st Half of FY10 saw a swivel in the bottomline from blood red in the last year to lush green this time. However, it is pertinent to mention that 62.51 percent of the total came from the PAT of 2nd Quarter FY10. The sales of the company in 2Q/FY10 were up by 24.20 percent in monetary terms due to a substantial rise in the international oil prices on year-on-year basis along with overall increase in the sales volume (especially Furnace Oil). Secondly, the company reported inventory gains of Rs711.00 compared to a colossal Rs5.59bn inventory loss in the second quarter of FY09. While financial charges continued to haunt the bottomline in 2Q/FY10 as well with a 24.30% rise (including markup on delayed payments to refineries) on Y-o-Y basis, the bottomline got a tactical uplift from receipt of Rs2.10bn from the Independent Power Producers IPPs in terms of penalty on delay of payment of receivables. According to news in the mid-March 2010, PSOs receivables were standing at a staggering level of Rs109.10b against payables of Rs92.28b, thereby causing huge cash flow and liquidity problems. The gravity of the situation can be ascertained from the statement of PSOs Managing Director on a news channel that the company is incurring financial charges to the tune of approximately Rs21.00m per day. Resultantly, Cabinet Committee on Energy Crisis (CCEC) has directed the Finance Ministry to arrange Rs43.00b through different sources for PEPCO to make payments to PSO with a tentative date of April 02, 2010. However, only Rs4.00bn has been paid to the company till yesterday. In order to tackle the crisis, the government is planning another bond (Sukuk) in the range of Rs100.00bn, in addition to Rs162.55b raised earlier from two Term Finance Certificates TFCs issues in March 09 and September 09, to clear the mounting circular debt before the end of the current fiscal year. Besides this, the government has planned another power tariff hike of more than 6.00% (plus the monthly fuel adjustment) in the coming month in order to phase-out all the subsidy components before the start of FY11. In addition to the Rs2.10bn received during 1H/FY10 as a new strategy to squeeze out cash, the co has received another PRs1.20bn from IPPs in January 10 which would reflect in 3Q/FY10 results.