PSO's Liquidity Crunch: When Circular Debt Meets Geopolitical Risk
Prime Comment #43
Pakistan’s State Oil (PSO) receivables have totalled Rs 909 billion as of July 2026. SNGPL alone owes Rs 536 billion, with Rs 253 billion in late payment surcharge, reflecting persistent delays in settling principal dues. The power sector contributes Rs 168 billion, with some unpaid since FY2018-2019. This is seven years of cumulative institutional default disguised as a receivable issue. At a time when Pakistan’s fuel imports face growing external risks, this liquidity constraint has become a matter of energy security. Pakistan’s Special Secretary Petroleum has cautioned that closure would force sourcing from Nigeria and the USA at higher costs, with petroleum reserves sufficient only until August.
The timings make this issue worse. Pakistan’s primary maritime energy corridors are currently affected by the regional conflict. The Strait of Hormuz has been blocked since the Iran-USA conflict escalated, and Qatar Energy declared force majeure in March 2026. Pakistan has since acquired at least seven spot LNG cargoes, the most recent at $21.88 per MMBtu, at a price roughly double the long-term price. The Houthis’ control over Bab al Mandeb now puts the fallback route at risk. According to the Kalper data, 36% of Pakistan’s oil imports pass through Bab al-Mandeb. Therefore, the PSO requires greater financial flexibility to procure fuel in an increasingly uncertain market. However, it is receiving less since SNGPL and the power sector are treating their financial obligations as a soft default with no consequence.
PSO’s statement of corporate intent describes it as “designated importer on behalf of the Government of Pakistan” for LNG. Its borrowing totalled Rs 337 billion as of May 2026, a 4.0% increase from Rs 324 billion as of September 2025, and is projected to rise further by 4.7% to 8.6%, reaching Rs 353-366 billion. Simply put, the government orders PSO to buy petroleum but does not pay for it, and PSO borrows from banks to keep standing. The persistent recovery losses and payment delays across the energy supply chain end up on PSO’s balance sheet as commercial bank debt. Temporary financing can ease liquidity pressures, but it cannot substitute for a durable resolution of circular debt. Unless payment discipline is restored across the electricity and gas sectors, PSO will continue to finance public-sector payment delays through commercial borrowing, increasing financing costs and weakening Pakistan’s energy security.
The OGRA Gas (Third-Party Access) Rules, 2018 already provide a regulatory framework through which qualified private shippers can access Pakistan’s gas transmission network under regulated commercial arrangements. Effective implementation of these provisions, together with broader reforms to facilitate private LNG procurement, could expand private participation, diversify procurement channels, and distribute commercial risks more evenly across the energy market. The regulatory framework already exists. What remains is the willingness to move beyond a highly centralised procurement model towards broader private sector participation, particularly when Pakistan’s energy security depends on resilient and financially sustainable fuel supply arrangements.