PPL seeks direct gas sales to private sector as circular debt mounts

KARACHI: Pakistan Petroleum Limited (PPL), the country's second-largest oil and gas explorer, has asked the government to allow it to sell its gas directly to the private sector, as its receivables from state-owned gas companies have crossed Rs500 billion, its chairman said on Monday.

PPL is currently obliged to sell its gas to Sui Northern Gas Company Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL), which distribute it to consumers across the country. However, the gas companies are facing a cash crunch due to delayed payments from power producers, fertiliser plants and other customers.

"The proposal is awaiting the government's approval," Shahab Rizvi, chairman of PPL's board of directors, told shareholders at the company's annual general meeting in Karachi.

PPL's annual report for the fiscal year 2022-23 said the company's core indigenous gas business is facing a growing issue of circular debt, with cash collection lagging behind rising levies and taxes on higher revenues. It said the receivables have crossed half a trillion rupees in the gas business and the opportunity cost alone amounts to over 100 billion rupees per annum."

"The situation is not sustainable and is being escalated at the highest level and at the same time, PPL is actively pursuing diversifications into alternate revenue streams including mining and international ventures."

Rizvi said a recent increase in gas prices, effective from Nov. 1, will have a positive impact on the company's earnings and is expected to add Rs40-50 billion annually.

The company;'s chairman said that PPL has entered into a strategic partnership with Oil and Gas Development Company Limited (OGDCL) and Government Holdings Private Limited (GHPL) to acquire a 25 percent stake in the copper and gold project in Balochistan's Reko Diq region.

The project is currently undergoing a detailed feasibility study, projected to be completed by 2024 with production expected to commence in 2028.

PPL has also intensified its focus on Baryte, Lead and Zinc (BLZ) mining project in Balochistan and is exploring additional mineral prospects in the province, Rizvi added.

"The company is also expanding its operational scope beyond national borders as demonstrated by its acquisition of offshore Block 5 in Abu Dhabi's promising zone."

Company said that continuous devaluation of rupee and increasing inflation rate have created a challenging business for all the companies in Pakistan and PPL is also exposed to increasing business risks as its mainly dependent on the production of hydrocarbons, which indigenously are not as easy to discover and monetize as before in the wake of increasing explorations and development costs in frontier geological basins and maturation of the other local basins.

“A reasonably mature ERM framework is in place that focuses on identification, through assessment and effective mitigation of risks”, PPL said.

PPL currently operates in eight producing assets at Sui, Kandkhot, Adhi, Gambat South, Dhok Sultan, Mazarani, Chachar and Hala. In addition, company has working interest in thirteen partner-producing fields. The overall production of the company increased by one percent in FY23. The gas production increased by one percent and condensate/NGL/oil decline by two percent while LPG production was up three percent.

The company also expressed concerns on the security situation in the country, especially in the border regions of Khyber Pakhtunkhwa (KP) and Balochistan.

“Security situation in Pakistan is highly volatile especially in the border regions of KP and Balochistan as there has been gradual increase in terrorists attacks,”PPL's annual report said. "The company managed the security risk by only initiating the seismic and well operations after clearance of area from the security forces."

PPL reported a record profit of Rs98 billion for the financial year 2023. It also declared a final cash dividend of Ras15 per share.