Oil exploration and production companies in Pakistan are on the verge of shutting down operations due to the nonpayment of approximately Rs. 1.3 trillion or $4.65 billion in pending dues from Sui firms.
Growing Receivables and Insufficient Payments
According to the Pakistan Petroleum Exploration & Production Companies’ Association (PPEPCA), the receivables of these companies have continued to accumulate, while the payments they have received do not even cover the taxes they are required to pay to the government.
Inadequate Funding for Operations
The PPEPCA stated in a letter addressed to senior government officials and stakeholders that the payments made by Sui companies are insufficient to cover essential expenses such as sales tax, royalty, and advance income tax. Consequently, there is a severe lack of funds available for operating, development, and exploration expenditures.
Borrowing at Exorbitant Rates
To sustain production operations, the companies are left with no choice but to borrow at exorbitant interest rates ranging from 25 to 30 percent. This situation has forced many planned exploration and development drilling activities to be put on hold, further exacerbating the crisis.
Negative Impact on Energy and Transportation Industries
The suspension of these activities will have a detrimental effect on the local energy and transportation sectors. In June, Pakistan experienced a significant decline of over 55 percent in petroleum imports, and the shortage of fuel, combined with the halted exploration and production activities, may adversely affect national consumption forecasts in the coming cycles.
Ensuring Short-Term Supply Stability
To avoid potential supply chain challenges and maintain production for various purposes, Pakistan needs a sufficient stock of multi-grade distillates in the short term.
