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KARACHI: Pakistan State Oil, the country’s largest oil trader, says it is in talks with the government on a plan to acquire stakes in public sector energy companies and offset mounting debts of companies like the national carrier.
Stopping the pile-up of unresolved debt in Pakistan’s energy sector, and eventually settling it, is a top priority of the International Monetary Fund (IMF), with which Islamabad will begin talks on a new long-term loan deal this month.
“Everything will be done through competitive bidding and we will participate and if we win, the stake will be offset against PSO’s claims,” said Syed Muhammad Taha, managing director and managing director of the state-backed PSO.
“That is our proposal and this is under consideration, so we are working with the government,” Taha said on Wednesday in an interview with Reuters, which first reported the plan.
The Pakistani government is PSO’s largest shareholder with a stake of about 25 percent, but private shareholders own the rest.
Government officials, including the petroleum minister and the information minister, did not respond to a Reuters request for comment.
Total circular debt in Pakistan’s energy and gas sector stood at 4.6 trillion rupees ($17 billion) as of June 2023, or about 5 percent of GDP, the IMF says.
Circular debts are a form of government debt that partly arises from non-payment of contributions in the energy 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 largest shareholder or the direct owner of most of these companies, making it difficult to service debt as the budget tightening leaves money unavailable.
Among other steps sought by the IMF, Pakistan has raised energy prices to stop debt build-up. But the accrued amount is yet to be resolved.
Taha said the IMF reforms have helped the sector by increasing creditors’ ability to pay, which will continue to improve.
PSO’s total claims on government agencies and autonomous bodies amounted to 499 billion rupees ($1.8 billion), most of it owed to gas supplier Sui Northern Gas, whose largest shareholder is the government.
PSO’s annual report last year stated that the debt crisis was a serious problem for PSO.
Taha said PSO had initially mooted the idea of ​​acquiring shares or outright ownership of assets such as power plants in Nandipur in northern Punjab province and Guddu in southern Sindh, as well as the government holding company for power generation companies.
Equity stakes in profitable public sector companies such as the Oil and Gas Development Co were also discussed, he added.

PIA DEAL
Taha said PSO was also part of the broader settlement framework for the privatization of Pakistan International Airlines, which would potentially include a “clean asset swap” and a stake in the airline’s non-core assets such as real estate.
The government is setting aside a stake ranging from 51 percent to 100 percent in the debt-ridden PIA as part of the public sector reforms sought by the IMF.
In March, media said the principal amount alone PIA owed PSO for the fuel supply was about 15.8 billion rupees ($57 million).
Taha added that he expects modest growth in demand for petroleum products as the economy opens up, thanks to lower interest rates and higher disposable income.
As economic conditions improve, he added, PSO is working with major strategic investors from China and the Middle East to upgrade and expand its refinery, Pakistan Refinery Ltd.
PSO has a network of 3,528 retail outlets, in addition to 19 depots, 14 airport refueling facilities, operations at two seaports and Pakistan’s largest storage capacity of 1.14 million tonnes.