Oil & gas sector: Plan to deal with Rs1,500bn circular debt soon

ISLAMABAD: The Petroleum Division’s top mandarins have carved out a multi-pronged strategy to resolve the circular debt in the oil and gas sector that has surged to Rs1,500 billion, mainly through improving the balance sheets of Public Sector Entities (PSEs) involved in the petroleum sector, a senior official of the Energy Ministry told The News.

Through netting off dividends of the government in profit-making entities to loss-making entities, the circular debt of Rs850 billion will be settled in the balance sheets and the remaining Rs650 billion will be settled with an increase in gas prices.

The Sui Gas companies are running into huge losses of Rs677 billion because of not increasing the gas prices; if the situation continues unabated, then their loss will increase up to Rs757 billion by June 2023.

Right now, the gas rates for residential consumers stand at Rs450 per MMBTU in the Sui Southern system against the prescribed price of Rs850 per MMBTU and Rs400 per MMBTU in the Sui Northern system against the prescribed price of Rs1,007 per MMBTU, showing a gap between sale gas price and actual cost of gas, which is too large.

Sources said because of this increasing gap, both the gas companies are facing mammoth losses and if corrective measures are not taken, then the time is not far when both will become bankrupt. The IMF is asking the incumbent government to ensure the required increase in gas prices to avert the impending collapse of both gas companies.

The sources said the amount under the Benazir Employees Stock Option Scheme (BESOS) resting with PSEs would also be adjusted in improving the balance sheets.

The government has also decided to introduce a limited gas tariff based on WACOG (Weighted Average Cost of Gas) on residential consumers for a certain period till the recovery of the cost of RLNG injected into the domestic sector. RLNG of Rs108 billion has been injected in the last 4 winter seasons and RLNG of another Rs110 billion is to be provided in the ongoing winter season. This is how RLNG of Rs218 bn in toto would be diverted to the domestic sector in Punjab till February 2023. The government may introduce a WACOG tariff to recover the RLNG cost in the SNGPL system. Right now, the RLNG price is ring-fenced and under the latest scenario, RLNG has been classified as a gas product. Earlier, RLNG was being treated as a petroleum product owing to which its cost could not be recovered from residential gas consumers.

To a question, the officials said the government dividends of Rs850 billion in SOEs that the government have not used yet will be used in netting off the dues of some of the entities that are facing losses.

The officials said that term finance certificates would also be made saleable documents by converting them into Pakistan Investment Bonds (PIBs) and TFCs of OGDCL of Rs140 billion would be cashed in. They said that in 2013, the OGDCL was provided TFC against its lending of Rs80 bn to GHPL (Government Holding Private Limited).

The GHPL in the first two years also provided an interest rate on TFC of Rs80 billion, but later on, it failed to provide it. This is how the amount swelled to Rs140 billion, which the GHPL owes.

“The TFC that was provided to OGDCL was just a document and it could not be cashed in. Now the government has decided to convert TFCs of various entities into PIBs (Pakistan Investment Bonds), which will be saleable documents, and this is how the amount to be cashed in will be used to improve or cleanse the balance sheets of the entities.

“There are some proposals that PSO may be given some stake in GENCOs to settle the long-standing dues. PSO has been offered some stakes in the Nandipur power plant, but the management of state-owned oil marketing company is not inclined to obtain stakes in GENCOs, which are in losses and are not must-run plants.”