pso winter internship
TRANSCRIPT
Circular Debt In the Energy Sector and Its Resolution
Winter Internship Program 2010-11
Team Members
• Arif Mustafa (BBA Finance, SZABIST)• Raza Ravjani (ACCA till date)• M. Raza Banani, BBA(Finance) 3rd year, ACCA till
date (Iqra University)• Soomal Memon, (ACCA Finalist)
PSO Winter Internship program 2010 (FR-MIS) 2
Introduction
• What is Circular Debt?
• Causes of Circular Debt.
• Entities involved in Circular Debt.
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• Facing problems in cash inflows.
• One entity influencing the other.
• Every participant is debtor as well as a creditor.
owes
owes
owes
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Circular Debt
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Key Players in the Energy Sector
Source : The Lahore Journal of Economics, ‘Dynamics of Circular Debt in Pakistan and its resolution’ by Syed Sajid Ali and Sadia badar
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(FR-MIS)
Understanding the circular Debt Cycle
Source : JS Global Capital Limited ‘PSO company update’
Causes Of Circular Debt
• Oil Prices
• Government Policies • Cash flows of PEPCO
Recovery from FATA Recovery from government institutions. Recovery from KESC
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How did Inter-Corporate Debt chain developed in the Energy Sector?
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Source: The Lahore Journal of Economics, ‘Dynamics of Circular Debt in Pakistan and its resolution’ by Syed Sajid Ali and Sadia badar
June 2006
November 2008
August 2006
August 2008
June 2007
June 2008
July 2008
PEPCO was forced to obtain bank loans against government guarantee
PEPCO delayed payments to IPPs
IPPs started borrowing from banks
IPPs payable to OMCs (mainly PSO) started building up
OMCs deferred their payments to refineries
OMCs and Refineries started to obtain loans from banks
A few refineries (e.g. Bosicor) were unable to open oil import LCs due to exhaustion of their exposure with banks
2004 2005 2006 2007 2008 2009 20100.00
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
189
371884
1,158
1,368
6,232
9,882
Financial Charges
Financial Charges (Rs. Million)
Year
Rupees in ‘000’
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Analysis of Financial statements (PSO)
Source : PSO Financial reports
2004 2005 2006 2007 2008 2009 2010
-1.50
-1.00
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2.20 2.202.10
1.10
2.40
-0.93
1.00
Net Profit Margin (%)
Net Profit Margin (%)
Year
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Contd..
Source : PSO Financial reports
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Contd..
2006 2007 2008 2009 2010
(10,000,000)
(8,000,000)
(6,000,000)
(4,000,000)
(2,000,000)
-
2,000,000
4,000,000
6,000,000
8,000,000
Free Cash Flow analysis (Liquidity status of the company) 5 years at a glance (PSO)
CFOFCFFFCFECFICFF
Number of years
Rupees in '000'
Source : PSO Financial reports
Recommendations
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Short to Medium Term:
• Increase in tariff. • Flotation of TFCs
• Transmission/Distribution Losses
• Control of theft.
• Improvement in cash flows of PEPCO
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Contd..
Long Term:
• Production of electricity from coal.
• Infrastructure development.
• Removal of subsidies from Tariffs.
• Issue of tax exempt energy bonds.
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Contd..
Thank You,Any Questions?