Pakistan fuel crisis weighing on credit worthiness: Moody’s
27 Jan 2015 3:23 AM GMT
The country is currently in the grip of one of its worst power crises in years due to a shortfall in imported oil, with the situation exacerbated yesterday by an attack on a key powerline in restive Baluchistan province. Moody’s said that increasing energy imports without addressing structural issues that create so-called circular debt “will further strain Pakistan’s budget and balance of payments, a credit negative”.
“Fuel shortages also reflect the strained finances of state-owned distribution companies and the fuel importer, Pakistan State Oil corporation, and are a setback to the sector’s progress on reforms made so far under Pakistan’s financial support programme with the International Monetary Fund.” The IMF granted a $6.6-billion loan to Pakistan in September 2013 on the condition that it carry out extensive economic reforms, particularly in the energy and taxation sectors. Moody’s, which in July 2014 upgraded Pakistan’s rating outlook from ‘negative’ to ‘stable’ in a boon for the shaky South Asian economy, said that structural reforms had been a ‘key driver’ in its decision last year. ‘Circular debt’ -- brought on by the dual effect of the government setting low electricity prices and customers failing to pay -- is at the heart of the crisis.
State utilities lose money, and cannot pay private power generating companies, which in turn cannot pay the oil and gas suppliers, who cut off the supply. The fuel crisis began last week when Pakistan State Oil was forced to slash imports because banks refused to extend any more credit to the government-owned company, which supplies 80 per cent of the country’s oil. The shortfall led to long queues of angry motorists at petrol stations, though these have since dissipated as fuel supplies have reached the pumps.
But Moody’s warned that the Nawaz Sharif government, which made solving the energy crisis a key campaign pledge, had so far failed to offer policy solutions.
“Fuel shortages also reflect the strained finances of state-owned distribution companies and the fuel importer, Pakistan State Oil corporation, and are a setback to the sector’s progress on reforms made so far under Pakistan’s financial support programme with the International Monetary Fund.” The IMF granted a $6.6-billion loan to Pakistan in September 2013 on the condition that it carry out extensive economic reforms, particularly in the energy and taxation sectors. Moody’s, which in July 2014 upgraded Pakistan’s rating outlook from ‘negative’ to ‘stable’ in a boon for the shaky South Asian economy, said that structural reforms had been a ‘key driver’ in its decision last year. ‘Circular debt’ -- brought on by the dual effect of the government setting low electricity prices and customers failing to pay -- is at the heart of the crisis.
State utilities lose money, and cannot pay private power generating companies, which in turn cannot pay the oil and gas suppliers, who cut off the supply. The fuel crisis began last week when Pakistan State Oil was forced to slash imports because banks refused to extend any more credit to the government-owned company, which supplies 80 per cent of the country’s oil. The shortfall led to long queues of angry motorists at petrol stations, though these have since dissipated as fuel supplies have reached the pumps.
But Moody’s warned that the Nawaz Sharif government, which made solving the energy crisis a key campaign pledge, had so far failed to offer policy solutions.
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