Pakistan State Oil receivables dangerously high due to circular debt

Pakistan State Oil, a petroleum marketing and distribution company, is trying to collect receivables of Rs 317.6 billion (about US$2.09 billion) as the country suffers from circular debt that is crippling the power sector, and by extension all aspects of life in the country.

Circular debt is a vicious cycle of unpaid debts that leads to breakdowns in critical transmission and other infrastructure. It goes up to the top, to a government that is struggling with a large fiscal deficit and a slowing economy.

Electricity users in Pakistan tend to not pay their bills because they do not get the electricity they need, making it difficult for distribution companies to upgrade their ageing transmission lines, leading to even more losses.

As of April 10, Pakistan's circular debt in the power sector stood at roughly US$10.6 billion, according to Al Jazeera, with the number increasing by US$6.4 million every day.

Pakistan State Oil is owed money by the government, power generation companies and independent power producers. It in turn has loans of around Rs. 100 billion from commercial banks, and this is purportedly costing it Rs. 1 billion in interest every month. The company also does not have a permanent Chief Executive Officer.

A cursory look at the oil company's financials reveals troubling figures.

Its high receivables are not supported by cash flow. As of the 9 months in the current financial year, Pakistan State Oil burned Rs 7.4 billion on operations and recorded Rs 3.9 billion in short-term loans (while paying Rs 2.3 billion in dividends). This left it with a negative balance of Rs 15.2 billion in its cash column.

On the overall, the company has Rs 101.9 billion in short-term loans, while carrying Rs 138.6 billion in payables.

Pakistan State Oil listed on the Pakistan Stock Exchange in 2001, with the government retaining a 22.47% stake. But it gets occasional cash injections from the state. In August 2018 it received Rs 10 billion from the government to pay for imported oil to supply to power generation companies, which in turn could not pay it because of circular debt.