PSO's turnaround amidst financial challenges

Pakistan State Oil delivered strong results for the six months ended December 31^st 2009 by achieving after tax earnings of Rs 5.08 billion during the first half of financial year 2010 (1H FY10) as compared to a Rs. 10.0 billion loss during 1HFY09. The announcement followed a Board of Management (BoM) review of the company’s performance in a meeting held on February 17^th 2010 at PSO House.

During the period under review, the Company’s sales revenue touched Rs. 414 billion as compared to Rs. 392 billion in the corresponding period last year. Despite financial challenges and economic slow down, PSO maintained its leadership in the White and Black Oil market segments with market shares of 56.3% and 88.5% respectively. Overall, the market share for PSO stood at 71.4% during 1HFY10. 

In Black Oil, PSO posted a phenomenal growth of 27.2% in the backdrop of increasing demand of furnace oil by the power sector which was meticulously fulfilled by PSO. The company registered positive volumetric growth of 28.2% and 5.4% in Mogas and JP1 respectively. However, in HSD, the Company experienced negative growth of 4.8%. PSO’s growth in the White Oil segment remained below the industry average segment owing mainly to the circular debt crisis which affected the Company’s ability to arrange products from local sources.

The circular debt crisis continued to remain a serious problem as power sector customers continually defaulted on payments during the period under review. As on December 31, 2009, PSO’s receivables stood at an alarming figure of Rs. 83.8 billion. The company incurred financial charges of Rs. 3.9 billion in 1HFY10 on account of circular debt as compared to Rs. 2.9 billion in 1HFY09. Keeping in view the surge in receivables and the adverse liquidity position of the company, the BoM decided to defer dividends at this stage.

The reporting period witnessed the transference of 12% of the GoP’s shareholding to the employees of PSO under the Benazir Employees’ Stock Option Scheme (BESOS). This initiative is expected to result in enhanced responsibility and more productivity on the part of employees thereby translating into improved bottom line results for the Company.  

During the 1HFY10, the company signed a Fuel Supply Agreement with Northern Power Generation Company Limited (NPGCL), a subsidiary company of the Pakistan Electric Power Company (Private) Limited (PEPCO), for exclusively fulfilling Furnace Oil and HSD requirements of all the power stations of NPGCL. In addition to this, the company made a strategic alliance with The Wall Street Exchange (WSE) that envisages the establishment of inward/ outward remittance and currency exchange facilities at selected PSO retail outlets across the country.

Over the past few years, PSO has been actively involved in social welfare activities. Significant CSR highlights in the reporting period include provision of equipment to Child Aid Association’s pediatric oncology unit and funding a fully equipped ambulance for Chippa Welfare Association.

The Board expressed its confidence in the company and the leadership of Managing Director, Mr. Irfan Qureshi that given PSO’s inherent strengths and support of the GOP, the company will continue to overcome all the challenges imposed by global and local market dynamics and shall continue to maintain its leadership position within the energy sector. PSO’s management vowed to continue making all out efforts in collaboration with GoP for recoveries from the power sector to ensure availability of products in the country and to reduce the impact of financial cost on the Company.