Pakistan State Oil (PSO) conducted a corporate briefing on 9MFY23 performance to discuss current and future operational dynamics.
Regarding the buildup of gas circular debt, the management mentioned that the buildup is solely due to the wellhead segment of gas and will be curtailed due to the recent increase in gas prices in Feb-2023. However, the LNG segment will continue to pose a problem for the company in the future. Management commented on plans for PRL and mentioned that US$1.5-1.7bn expansion is under consideration, which would double the refining capacity.
Regarding the FX losses adjustment mechanism, management explained that PSO is used as a proxy since it has an import share of 70%. The company provides calculations to OGRA (Oil and Gas Regulatory Authority) regarding its FX losses, which are adjusted in the final product prices.
PSO is in constant discussions with the government regarding the turnover tax regime and is negotiating a reduction to maintain the viability of the OMC business. To note, the current turnover tax for OMCs is 0.5%.
Management explained that negative Inland Freight (IFEM) is a penalty imposed on refineries for supplying lower-quality fuel products. In normal circumstances, when IFEM is positive, calculations are based on OMCs’ transportation costs, and the benefit is passed on to consumers in the form of uniform prices.
The government collects Petroleum Development Levy (PDL) on the import stage or directly from refineries.
Furnace oil sales of PSO for 9MFY23 stood at a monthly average of 94.6k tons, compared to a monthly average of 172.2k tons during the same period last year. The volume reduction is primarily due to the company’s heavy reliance on power generation and the current decrease in demand from that sector.
Commenting on recent storage expansions, a company mentioned that the cost per metric ton of storage capacity expansion ranges from Rs25k-30K. This cost depends on the storage size, with larger storage sizes offering better economies of scale.
Jet fuel is a profitable business for the company, and margins are deregulated. Therefore, contracts are negotiated separately with airlines, and margins can vary from client to client.
To note, in 9MFY23 PSO posted Profit After Tax (PAT) of Rs10.29bn (EPS: Rs21.91) compared to PAT of Rs64.77bn (EPS: Rs137.96) in 9MFY22. The main reasons for the decline are inventory losses due to declining international oil prices, higher borrowing costs and higher effective tax rates.
Courtesy – Topline Securities