KARACHI - The Pakistan State Oil (PSO) is expected to post profit of Rs 2.4 billion during 4QFY09 as compared to earnings of Rs 5.6 billion in the similar period last year. Moreover, HUBCO is expected to register earnings of Rs 4 billion as compared to profit of Rs 2.6 billion last year, say petroleum experts reports. As stated in report, in FY08, there was an abnormal increase in oil prices, which resulted into huge inventory gains in PSO. Though a similar trend of rising oil prices was witnessed in 4QFY09, the quantum of increase is however lower than last year. During 4QFY09, oil prices rallied by approx. 45pc, hence, the tax inventory gains of Rs. 1.6billion. The gross profit is expected to reach Rs 6.9b during the period. The impact of the handsome inventory gains on the bottom-line would however be muted to an extent by higher financial charges. It is expected that the financial charges to arrive at Rs.1.6b in 4QFY09 (2.3 times higher YoY). Rising financial cost is driven by the circular debt problem, which has eroded the liquidity of PSO and forcing it to rely on short-term borrowings to bridge the working capital gap. The company has already paid an interim dividend of Rs. 5 per share with 2QFY09 results. On the other hand, HUBCOs top-line is expected to increase by 34pc YoY to Rs. 83.38 billion on the back of higher revenue indexation due to 27pc YoY PKR depreciation against USD and increased US CPI. The increased fuel charges passed on to WAPDA which further trickled down to contribute to 34pc YoY increase in the operating costs. Being trapped in the circular debt crisis, the company had to increase its reliance upon short term financing to resolve the liquidity issues faced resulting in an 11pc YoY increase in financing cost. In 4QFY09, HUBCO is to announce profit of Rs1.0bn versus earnings of Rs. 613mn in corresponding period last year. Even after Rs. 24bn adjustment through government paper guarantee. Wapdas overdue payments to HUBCO is still at Rs. 24bn. Due to IMF conditionality, it is expected that circular debt issue to settle in next few months through improve liquidity and upward adjustment in electricity tariff. Moreover, due to the slowdown in Pakistans economy, total POL product offtake from refineries fell by 14.1pc YoY to 6.78mn tons in 1MFY10. The consumption of the two heavy weights, High Speed Diesel (HSD) and Furnance Oil (FO) declined by 14pc YoY with their combine volume standing at 477mn tons. FO and HSD consumption declined by 2.3pc and 24pc YoY respectively in the said period while their combined volume consumption contributed 70pc to total volume against 561mn tons (71pc contribution) in 1MFY09. According to reports, this drop in the sales was also followed by other products like LDO, Kerosene, JP-8 and MoGas which witnessed a decline of 51.4pc, 42.9pc, 14.1pc and 12.0pc YoY respectively. The energy sector being entrenched in circular debt, dampening power sectors cash generation ability, forcing a decline in FO consumption has been adversely affecting the refineries. On the other hand, HSD consumption declined on account of less demand from the transportation sector because of price hike. Overall capacity utilization of refineries remained muted because of the credit crunch, uncertainty in intl oil prices, and depreciating PKR/USD.