Oct 27 - Nov 02, 2008

Pakistan State Oil (PSO) announced the financial results for the 1st quarter ended September, 2008. The announcement came following the Board of Management review of the first quarter of financial year 2008 performance of the country's largest oil marketing entity. Sardar Yasin Malik, BoM Chairman, presided over the meeting.

During the review period, the company's sales revenue touched Rs. 222 billion compared to Rs. 122 billion in the corresponding period last year mainly due to the rise in the retail prices of different products in the country. During the 1st quarter 2009, the loss after tax came to Rs. 8.38 billion versus profit after tax of Rs.2.1 billion during first quarter FY 08.

The decline in the profitability of the company was mainly due to heavy inventory losses suffered because of a sharp fall of 35% in the international oil prices during the quarter as against an increase during the corresponding period last year which had resulted in inventory gains. In addition to this Pak rupee devaluation of 13% against US$ severely hampered the profitability of the company, as more than 80% of oil product imports in the country are carried out by PSO. These factors also adversely affected other players in the oil sector of Pakistan during the review period. In compliance with the accounting standards the Company also adjusted the inventory values for the reduction in product cost subsequent to the balance sheet date. Had the inventory loss, exchange loss and high interest due to borrowing not occurred the company would have made a profit after tax of approx. over Rs. 3 billion.

The Company faced serious liquidity problems owing to receivables from the IPPs (Hubco, KAPCO, PEPCO) and PIA who defaulted on payments to PSO. As on September 30, 2008 receivables from these entities stood at Rs. 49 billion adding to company's cash flow problems. At present outstanding dues from HUBCO, KAPCO, PEPCO and PIA stand at Rs.61.4 billion. PSO management is making concerted efforts with the help of the government for recoveries from these entities to ensure availability of products in the country.

In addition to above mentioned receivables from IPPs and PIA, Price Differential Claim (PDC) also added to the liquidity crunch situation of the company. Due to rising international prices during FY08, government provided a very high level of subsidy to the consumers in Pakistan. The subsidy accumulation on account of PDC reached Rs 36.7 billion during the quarter. However reimbursements of Rs. 24 billion were received from GOP during the quarter, thus mitigating the cash flow crunch to some extent. In the backdrop of declining international oil prices the subsidy on diesel has been reduced substantially and on October 22, 2008 PSO received Rs. 8.34 billion from the government which reduced the subsidy to Rs. 11.8 billion. PSO is making all out efforts to recover the dues to lessen the impact of financial cost.

During the quarter, country's economy experienced a slowdown which caused decline of 2% in overall consumption in various fuel categories. Smuggling of products from Iran also had an adverse affect on the demand of locally available products. PSO remained market leader with an overall 71.4% market share. The Company performed exceptionally well in providing Furnace Oil to the power sector and increased its market share to 85.8% in this fuel category.

During the quarter PSO successfully implemented 12+1 Depot Model. This will help in increasing operational efficiency by reducing expenses incurred on the transportation of regulated products. The company has proactively aligned its resources in view of the new supply regime and would further rationalize its resources to the optimal level.

Being fully aware of the global trend in the development of alternative and renewable energy resources, your company has already initiated research and development work on bio-diesel and tests are in advance stages to blend it with conventional diesel.

The BoM expressed confidence that with continued marketing initiatives the company will further consolidate its market leadership position with the help of its customers, employees, dealers, cartage contractors, vendors and all other stake holders who have played their due role for the progress of their company.