Discussed in risk and mitigants

COMPETITION

PEER ANALYSIS

Estimated market
No Name Competitive advantage compared to Customer
share (%)

1 PSO 51% Leading Government owned OMC is Pakistan.

2 Total Parco 11% One of the Largest Refinery and OMC in Pakistan.

4 GO 10% More retail outlets

5 Attock Petroleum 7% One of the Largest Refinery and OMC in Pakistan.

6 BYCO 4.5% One of the Largest Refinery and OMC in Pakistan.

7 BE 3% Well managed OMC with 400+ retail sites.

8 PUMA 2% OMC with 500+ retail sites.

PEER COMPARISON (Latest audited financials if available or LOXON Extract)

Names
Indicator
PSO Puma Total PARCO Shell
(Figures in PKR Millions)
June 2022 Dec 2021 June 2021 Dec 2021

Revenue 2,451,580 36,806 337,233 249,210

Current Ratio (x) 1.27 0.98 1.45 0.86

Leverage (x) 3.17 3.73 1.05 0.35

Gearing (x) 0.75 0.18 0.19 4.54

Debt/EBITDA (x) 1.05 0.35 1.02 0.61

DSCR (x) 28.24 1.23 7.86 1.39

GP Margin (%) 6.6 5.3 4.7 8.3

OP Margin (%) 5.9 1.7 3.6 2.33

Net Margin (%) 3.5 (0.6) 2.5 1.58

 MANAGEMENT RISK ASSESSMENT

Comments on Organizational Structure & Corporate Governance (please highlight the level of corporatization/delegation etc.)

The Federal Government of Pakistan directly holds 22.47% of the Company's issued share capital and is entitled to appoint members of
the Board of Management – Oil under the provisions of the Marketing of Petroleum Products (Federal Control) Act, 1974, for the
management of the affairs of the Company. Subsequent to the Federal Government’s notification, a new Board of Management was
constituted in Nov-15 consisting of four directors other than the managing director.

Currently the Board of Management consists of 8 members including the Managing Director. All of them have diverse backgrounds and
have been part of the upstream and downstream oil industry in Pakistan and abroad. The Board of Management is responsible for the
strategic management of the Company. PSO has a succession plan in place, which has recently been prepared on the directives of the
Government of Pakistan. It covers all strategic positions in PSO. PSO has hired professional individuals with experience in their
respective fields to manage the day to day affairs of the Company.

Board of Management:

Mr. Zafar I. Usmani (Chairman): Mr. Zafar I. Usmani has held multiple C-level positions with multinational and national companies. He
has worked as Chief Operating Officer in Cable & Wireless JV, Paktel; Chief Executive Officer in ExxonMobil JV in Pakistan; Senior Vice
President Commercial in Pakistan International Airlines Corporation; Senior Executive Vice President in Pakistan Telecommunication
Company Limited and Chief Operating Officer in CM Pak Ltd (Zong). He has overall 33 years of experience with 17 years in C-level
positions, with exposure in the area of management, strategy, planning, marketing, sales, distribution, customer services and finance.

Syed Muhammad Taha (Managing Director): Mr. Taha has been appointed as the Managing Director & Chief Executive Officer of
Pakistan State Oil Company Limited (PSOCL) with effect from February 26, 2020. With 19 years of Executive level management
experience under his belt, Mr. Taha has been a key member of the change management team with specific reference to K-Electric and
PSO, where he was an integral part of the leadership team that turned around these struggling enterprises into highly profitable
concerns. Working as an Executive Director in Oasis Energy, he headed the Program Management Office of Port Harcourt Electricity
Distribution Company, Nigeria. Earlier, Mr. Taha worked at K-Electric Limited as Chief Operating Officer - Distribution and a vital member
of the Senior Leadership Team. Mr. Taha has been with PSO for over 9 years.

Mr. Muhammad Anwer (Member): Mr. Muhammad Anwer is a senior civil servant, currently posted as Senior Joint Secretary in the
Ministry of Finance and dealing with financial matters of water, power, petroleum and gas sectors.

Mr. Hassan Mehmood Yousufzai (Member): Mr. Hassan Mehmood Yousufzai is currently serving as Additional Secretary, Petroleum
Division, Government of Pakistan. He has served as the Director General, National Institute of Management, Pakistan Academy for Rural
Development and Pakistan Provincial Services Academy, Peshawar.

Ms. Tara Uzra Dawood (Member): Ms. Dawood is the Chief Executive Officer of 786 Investments Ltd., an Asset Management Company
initially launched on the instigation of Asian Development Bank. She is presently serving on the Board of Pakistan Refinery Limited and
Mutual Fund Association of Pakistan. She has also served as an Independent Director on the Board of Lahore Electric Supply Company
Limited.
Mr. Muhammad Humayun Khan Barakzai (Member): Mr. Muhammad Hamayun Khan Barakzai joined the Board of Management on
February 21, 2019. He has worked as Distribution Executive in Express News Channel from January 2009 to November 2018.

Mr. Arshad Majeed – Director and has 25 years of experience in administrative matters and is a notable officer in the civil service of the
country. Mr. Majeed has served in several key positions in Khyber Pakhtunkhwa (KPK) and Balochistan Governments. He holds master’
degree in political science.

Ms. Saira Najeeb Ahmed – Ms. Saira is a career civil servant who joined the Government of Pakistan in 1998. She has experience
working in economic policy and implementation, covering the areas of power and petroleum, fiscal and trade, economic diplomacy,
international development, regulation, and compliance. She has also served with the Ministry of Energy (Petroleum Division) in 2020,
and General-National Electric Power Regulatory Authority, Joint Secretary-Finance Division, and Commercial Counselor-Pakistan High
Commission, London, United Kingdom. She holds an MSc degree in Finance and Financial Law from the School of Oriental and African
Studies, University of London, United Kingdom.
 KEY MANAGEMENT

Names Designation Years With Company Total Experience

Mr. Syed Muhammad Taha MD 2020 20+

Ms. Guljar Khoja CFO 2021 25+

Mr. Abdul Sami Chief Supply Chain Officer - 24+

Mohsin Ali Mangi Chief Strategy Officer NA NA

Chief Shared Services Officer &

Rashid Umer Siddiqui NA NA
Company Secretary

Key Strengths and/or weaknesses of Management and impact on business

Experienced professionals managing strategy positions in PSO with relevant industry and government positions.

Succession:

Succession plan is regularly updated as per government directives for strategic positions.

Level of involvement of sponsors:

NA

Management changes/conflicts during the year and assessment of potential business impact

CFO, Ms. Gulzar Khoja was appointed during last year. She was earlier associated with Aga Khan Education Service (France) as Finance and
Operations Director, leading finance and operations function globally, for a network of over 200 schools and programs in 13 countries.
Before this she was also associated with Shell Pakistan. She is an FCA and MBA from the Institute of Business Administration (IBA).

Adverse Media/Litigation:

NA

KEY RISKS AND MITIGANTS

Based on the risk assessment, identify the key risk/drivers and for each one of them, identify how would those be mitigated i.e. through
structure, customer actions/strategy etc. Please ensure that risks/drivers are material and mitigant is also specific.

Mitigant(s)
Risk
Inventory & Exchange Losses:
PSO carries sizable inventories of various petroleum products in
order to meet the energy requirements of the company. 
Additionally, approximately 75% of the products are sourced
through imports.
A fall in the international prices of petroleum products can 
result in inventory losses.
As per SBP regulations, import of petroleum cannot be hedged.
Therefore, PSO resorts towards close monitoring of its foreign 
currency exposures. In addition, PSO is also carrying foreign
currency post import financing facilities on its balance sheet.
Due to above, PSO is susceptible to both inventory and
exchange losses.
FX Risk:
Depreciation of PKR against the USD can have an adverse
impact on the profitability of the company. The Company 
imports petroleum
products, LNG & chemicals and, therefore, is exposed to
currency risk. In addition, PSO cannot hedge its FX exposure
since State Bank of Pakistan (‘SBP’ or the ‘Regulator’) does not
allow hedging on oil imports.
 Risks and costs associated with exchange differences arising
The rate for USD has escalated from around PKR 176 in Dec
2021 to PKR 247 in Aug 2022.
Circular Debt/High Leverage:
Owing to circular debt, PSO’s receivable recoveries are delayed. 
Resultantly, this creates a working capital gap which PSO
finances through its working capital facilities. Pakistan State Oil,
as a fuel supplier to some of the major IPPs of the country,
becomes part of circular debt as these IPPs conveniently pass
on the drag of late payments against their dues to PSO.
 PSO continuously lobbies with relevant ministries and the
Consequently, PSO, with limited room to pass the burden to
international oil suppliers and local refineries, has to absorb the
impact on its balance sheet.
 Given its size and track record, PSO has access to
OMCs reduce inventory at month end when steep decline
in oil prices is expected, therefore, losses are made on
minimum inventory requirement that is necessary to keep
as per regulators.
With fortnightly revision in pricing of petroleum products,
the exchange loss is passed onto consumers, albeit with a
lag.
FCY loans are obtained on the directive and assurance of
the government that it will bear additional costs of and FX
losses suffered by PSO on these borrowings. This acts as a
mitigant to exchange losses on FCY loans.
Prices of petroleum products and marketing margins are
regulated and revised by the Government on a fortnightly
basis, based on the monthly average import prices of
different petroleum products. This allows OMCs (including
PSO) to pass on the impact of the exchange differential
onto the end consumer, albeit with a lag.
on foreign currency borrowings (FE-25) will be borne by the
government as per letter dated November 27, 2013 from
Finance Division. GoP has settled a significant amount of
these losses during FY-20.
The Company has a strategic & nationally important
position in Pakistan’s energy sector and its majority and
controlling interest is vested with GoP. Another advantage
to the Company is that it receives payments & financial
support from GoP but these are irregular & lack
predetermined pattern.
Government to release of its receivables. The Government
is also cognizant of PSO’s importance in Pakistan’s energy
chain and is working on resolving circular debt.
committed credit facilities. All major banks continue to
support PSO in meeting its financial obligations.
  PSO’ owing to its position as the largest OMC in Pakistan,
Interest Rates / Price Risk: commands very competitive pricing from its banks.

 It does not have any long term debt on its books. Hence, it
is not exposed to interest rate risk over a long tenor.
The Company’s interest rate risk arises from local creditors,
security deposits, short-term borrowing and running finance  Positive steps taken by the Government to address circular
facilities. debt will improve PSO’s cash flows, reducing reliance on its
short term borrowings and decreasing financial expenses.

 PSO is governed by the Marketing of Petroleum product

Management Capability and Succession Planning
(Federal Control) Act of 1974. The Managing Director
appointed by the federal government exercises and
performs all powers and functions of the Board of
Directors. The federal government has also constituted a
Board of Management under section 7 of the Act, which is
responsible for the strategic management of the Company.

 PSO has a succession plan in place, which has recently been

prepared on the directives of the Government of Pakistan.
It covers all strategic positions in PSO. PSO has hired
professional individuals with experience in their respective
fields to manage the day to day affairs of the Company.
 FINANCIAL RISK ASSESSMENT (Unconsolidated)

Change of More Than 10% (YoY) in any Balance Sheet or Profit & Loss Head of Account. Reasoning should be provided with special
emphasis on drivers identified during the business/management risk assessment

Head Of Account 2021 2022 Reasons For Change

Revenue significantly increased due to increase in both volume and

prices. The company was able to attain volumetric growth over and
above the industry in all major petroleum products – White oil
Sales 1,204,247,375 2,45,580,833
grew by 21.4%, while black oil witnessed a growth of 51.6%.Market
share increased by 2.6% in MoGas, 4.4% in Hi-Cetane Diesel and
7.9% in furnace oil.

196% increase YoY primarily due to rising prices and better

management of COGS (as compared with that of CY21) coupled
Gross Profit 54,609,051 160,995,221
with rise in topline. Likewise, Gross Margins of the company also
rose to 6.6% (CY21: 4.5%).

Finance cost reduced in FY22 due to lower average borrowing

levels and lower mark up rates in first half of fiscal year. Overall the
Finance Cost 10,242,350 4,720,705
finance cost decreased due to less reliance on expensive
borrowing.

Net profitability increased significantly due increase in gross profit

on account of higher sales volumes of white oil and black oil
products due to rise in industry demand and focused sales
Net Profit 29,139,205 86,222,528 strategies and favorable pricing conditions on account of rise in
international oil prices. Increase in other income and decline in
finance cost are also factors for increase in net profitability of the
company

Receivables – Related Receivables increased due to lower recoveries from SNGPL, GENCO
187,979,797 388,500,783
Parties & HUBCO.

Stock in trade increased mainly due to increase in international oil

prices, higher inventory in hand and increase in stock in transit.
Inventory 79,028,704 341,757,891
Buffer stocks were also maintained and imported when other
OMCs were having difficulty in procurement

Current assets increased by 157.9% primarily due to increase in

Total Current Assets 327,962,163 845,830,116
stock in trade(mainly due to price variation) and trade debts

Due to rise in liabilities relating to product purchases on account of

Accounts Payable – Non
58,499,645 336,185,979 surge in international oil prices. The same also increased due to
related Parties
higher imports of black oil, white oil and LNG on credit terms.

STD increased by PKR 99.8 bn mainly due to increase in financing

Short Term Debt 56,042,897 155,845,542 level to fulfill working capital requirements and slowdown in sales
post floods and lower disposable incomes.

Total Current Liabilities
Increase in current liabilities by 193.9% due to increase in trade and
other payables mainly on account of increase in cost of purchase
227,042,600 667,257,607
and increase in short term borrowings to finance working capital
needs

Shareholders’ equity increased by 54.1% primarily due to profit

Total Equity 139,978,202 215,649,101
retained during the year.

Trend Analysis

Indicator 2020 2021 2022 Comment on the indictor, trend and reasons for change

PSO achieved an all time high revenue due to increase in both

volume and prices. The company was able to attain volumetric
growth over and above the industry in all major petroleum
Revenue 1,108,357,723 1,204,247,375 2,451,580,833
products – White oil grew by 21.4%, while black oil witnessed a
growth of 51.6%.Market share increased by 2.6% in MoGas, 4.4% in
Hi-Cetane Diesel and 7.9% in furnace oil.

White oil grew by 21.4%, while black oil witnessed a growth of

Volume
51.6%.

Price Prices are a product of international oil prices

Cash Cycle

Inventory T/O increased to 54 days due to significant increase in

inventory levels in line with the increase in sales. Inventory levels
Inventory T/O 19 25 54 also increased as company as a strategic entity was meeting
country’s import requirement as other OMCs were finding it
difficult to manage import requirements.

Receivable
65 67 64 Receivable turnover remained at similar average level of 64 days
T/O

Payables T/O increased to 64 days due to significant increase in

Payable T/O 49 24 60
account payables to non-related parties

Current Ratio 1.35 1.44 1.27 Stable current ratio.

Leverage increased following increased short term bank borrowings

Leverage 2.02 1.71 3.17
and higher payables.

Adjusted
2.02 1.71 3.17 Same as above
Leverage

Gearing 0.63 0.44 0.75 Increased due to increase in bank borrowing

The ratio increased as company had better operating margins and

Debt/EBITDA 7.15 1.09 1.05
overall debt levels reduced due to better cashflows

Trending upwards in 2022. Sales have significantly increased , while

debt has increased by a much higher proportion (c. 165% increase).
Debt/Sales 6.39 5.07 6.63
We can expect Debt/Sales to continue this trajectory going
forward.
 DSCR increased as compared to last year due to reduction in
DSCR 0.74 5.45 28.24
finance cost and current maturities

ICR has shown an increase for the year in line with decreasing
ICR 0.62 5.30 32.32
finance cost

Increase in gross profit by 196% on account of higher sales volumes

due to rise in industry demand. Gross profit also increased due to
GP Margin 1.4 4.5 6.6%
favourable pricing conditions on account of rise in international oil
prices.

OP Margin -0.2 3.3 5.9% Due to higher GP levels which translated into high OP margins

Due to higher sales volumes and lower finance cost, company was
Net Margin -0.6 2.4 3.5%
able to record higher net profit

Other Issues

Qualification if any and its

rationale/ mitigation  N/A

Change in Auditors and

reasoning  No change in Auditor

Change in any important

 During the year there were no significant changes in accounting policies, judgements, estimates and
accounting policy and its
assumptions
implications

Capex during the year,

 No major Capex carried out by the company.
source of financing and
purpose

Major Transactions:
Related Party Transactions
 Investments in related parties of PKR 12.5 B(PAPCO, PRL, & APL)
and its impact (Lending,
 Payables to related parties of PKR 39.7 B (PARCO & ARL)
Investment, borrowings)  Receivables of PKR 388 B from various related parties

Projections (one year for WCF, equal to term for longer term loans)

Major Assumptions and

validity/reasonability of Sales Revenue has grown sharply during last year, due to volumetric growth and increase in oil prices in
assumptions (focus on international market. Going forward, projections have been made by growing current sales by 15%
drivers)