PSO, Govt and IMF Work on Plan to Clear Circular Debt

Pakistan State Oil (PSO), in collaboration with the government and the International Monetary Fund (IMF), is developing a strategy to address outstanding circular debt. The company disclosed that its receivables have remained stable since February 2024. At its annual general meeting, PSO management revealed that the company received Rs.

10 billion from the Power Division following the fiscal year and Rs. 26 billion from Sui Northern Gas Pipelines Limited (SNGPL) during the final quarter. PSO has regained over 40 percent of its market share, primarily due to improved product availability, pricing discipline, and efficient supply chain management. Management emphasized that profitability was not achieved through aggressive price cuts.

To maintain its competitive edge, PSO is modernizing its brand, investing in high-volume retail outlets, and automating its supply chain. Industry fuel sales are anticipated to remain relatively stable or experience modest growth. However, high petroleum prices, government austerity measures, and the rising adoption of electric vehicles (EVs) and solar power are negatively impacting demand.

As EV usage increases, gasoline demand is expected to slow, and the transition from furnace oil to natural gas may further influence petroleum consumption. In response, PSO plans to install EV charging facilities at select locations and along major routes, including Karachi-Hyderabad, Lahore, and Rawalpindi-Peshawar. To better manage operational costs and potentially qualify for revised margins, OMCs are prioritizing retail network automation, including the installation of automatic tank gauging systems, with completion expected by March 2027.

Additionally, PSO is preparing for possible deregulation in the petroleum sector, which the government is keen to implement. Despite disruptions in the Strait of Hormuz, PSO successfully received 11 LNG cargoes from QatarEnergy since March under existing contracts. The government is coordinating LNG procurement and contractual deliveries.

PSO has no plans to exit LNG, provided that structural issues are resolved with government assistance. PSO stated that local refineries currently meet 95 to 97 percent of domestic high-speed diesel demand, with only four to five diesel shipments imported since March 2026, resulting in negligible price differences between imported and locally produced diesel.

The company also highlighted the importance of diversifying crude oil and finished-product suppliers to mitigate exposure to geopolitical risks. The Ministry of Petroleum emphasizes the need to broaden the supplier base. The PRL upgrades and the White Oil Pipeline are crucial assets for PSO, with backward integration viewed as essential for profitability and supply security.

Upgrading the PRL and related infrastructure is estimated to cost between $5 billion and $6 billion, but the funding strategy remains undetermined. PSO is exploring upgrade and financing options with PRL, including possible equity partnerships. The outcome of any changes to PSO's stake will depend on the refinery's technical study, upgrade requirements, Euro V compliance, and the identity of a potential partner.

Negotiations for the White Oil Pipeline connecting to Peshawar are nearing completion, with a few outstanding issues. The project, involving PSO, SOCAR, and FWO, aims to reduce road transport dependence and enhance the safe, cost-effective movement of petroleum products. Construction is anticipated to commence once all outstanding matters are resolved.