Research Analyst
Oct 18 - 24, 2010

Pakistan State Oil (PSO), the largest oil marketing company of Pakistan, is currently engaged in storage, distribution and marketing of various petroleum products. The company's current market share of 82.3 per cent in the black oil market and 59.4 per cent share in the white oil market alone speak volumes of its success. The company has the largest network of retail outlets to serve the automotive sector and is the major fuel supplier to aviation, railways, power projects, armed forces, and agriculture sector.

PSO also provides jet fuel to refueling facilities at nine airports in Pakistan and ship fuel at three ports. PSO has been putting great emphasis on the importance of gaseous fuels as primary determinant of energy spectrum of the country. Presently, the company has restructured its gas business and brought it under one roof with a view to concentrate on this hugely lucrative and potential energy segment, which comprises LPG, CNG, and LNG.


INDICATORS 2010 2009
Total assets 202,247,741 153,421,643
Current liabilities 170,075,456 130,023,120
Sales (net trade discount) 877,173,254 719,282,176
Gross profit 29,166,244 3,010,111
Admin expense 1,125,891 1,151,793
Profit 9,049,596 (6,698,535)
EPS (Rs) 52.76 (39.05)

During the financial year 2009-10, the company's sales revenue touched Rs877 billion as compared to Rs719 billion in the corresponding period last year. Despite financial challenges and economic slowdown, PSO sold 14.2 million tons of POL products as compared to 13.2 million tons during the preceding year. PSO volumes grew by 17.8 per cent in furnace oil whereas the industry volumes expanded 14.6 per cent. The surge was mainly due to increase in demand in power generation sector. PSO despite the mounting circular debt responsibly met the demands of the power sector of the country.

The company registered positive volumetric growth of 20.9 per cent in Mogas. However, in HSD, the company experienced a negative volumetric growth of 9.7 per cent due to economic slowdown and circular debt. The circular debt crisis continued to remain a serious problem as power sector customers kept on defaulting on payments during 2010. As on June 2010, PSO's receivables stood at an alarming figure of Rs117.5 billion. Consequently, PSO had to rely on heavy bank borrowings resulting in financial charges of Rs9.9 billion in FY10 as compared to Rs6.2 billion in FY09.

Today, the receivables pertaining to circular debt stand at Rs130 billion. On the other hand, the balance recoverable reserves of crude oil have been estimated at 303.63 million barrels during 2010 in the country. The average crude oil production during July-March 2009?10 was 65,246 barrels per day as against 66,531 barrels per day in the corresponding period of last year showing a decrease of 1.9 per cent. During the same period last year, 27,659 barrels per day were produced in northern region and 37,586 barrels per day in southern region as against 26,888 barrels and 39,643 barrels produced per day respectively.

During July-March 2009?10, production of crude oil increased 2.9 per cent from northern region whereas production decreased in southern region by 5.2 per cent as compared to same period's overall 1.9 per cent decline in oil production.

The government is considering to cancel marketing licences of oil companies which have failed to set up storage facilities in accordance with the law, leading to drying up of their retail outlets and creating difficulties for commuters. The deregulation of prices of petroleum products would result in an average increase of about one rupee per litre in petrol prices, although removal of inland freight equalisation margin (IFEM) would reduce the prices of all products in major cities. The deregulation will improve the financial position of refineries except of Pak Arab Refinery, which is facing the problem of circular debt.

The reservations of the oil and gas regulatory authority (OGRA) over the impact of removal of the IFEM on petroleum products calculated by the PSO have been addressed.

Except PSO, Shell and Caltex, no other marketing company has developed storage facilities or maintained stocks. There were no reports of hoarding but smaller companies were short of stocks because of transport problems and lack of storage.

Because of the closure of Parco after the floods, the government had started moving products from Karachi to meet upcountry's requirements. The Parco would be producing about 2,000 tons of petrol after resumption of operations. The Attock Refinery produces about 1,500 tons and meets the requirement of Rawalpindi and some areas in Punjab, Azad Kashmir and Gilgit-Baltistan.


Recently, the government has paid Rs80 billion to the energy sector in order to resolve the problem of circular debt and has made a commitment to do more, which also bodes well for the profitability of the energy sector. The profitability of the industry players is correlated with the international oil prices. Oil prices have declined in the international market from the record high of $147/barrel in July 2008 to below $75 in June 2010 due to lower demand witnessed in the Asian markets.

Pakistan State Oil is the market leader in Pakistan's energy sector. The profitability of the company will depend on future economic conditions, GDP growth, and inflation apart from the fluctuations in the international crude oil prices.