Indebted: SSGC fears default as PSM fails to clear bills

Gas utility finds it difficult to finance strategic projects, threatens to cut off PSM's gas supply

KARACHI: Pakistan Steel Mills (PSM) has been constantly defaulting on payments to Sui Southern Gas Company (SSGC) and this makes it difficult to finance strategic programmes including the widening of pipeline network, says the gas utility.

Speaking about growing liabilities of PSM, an SSGC spokesperson, in a statement, said for the last three to four years, the dues had continued to rise.

In July 2012, PSM owed Rs8.3 billion to SSGC and by July 2013 the amount had shot up to Rs15 billion. Since then, according to the spokesperson, the outstanding amount is increasing uncontrollably. At present, PSM’s liabilities stand at Rs35 billion.

“This is a major concern for SSGC since it has made it increasingly difficult for the company to make payments to local and foreign exploration and production companies for the purchase of gas as well as to meet other commitments,” the spokesperson said. “If this situation persists, the gas utility may be forced to default on payments.”

The spokesperson said SSGC now had no choice but to cut gas supply to the steel mill. In July this year, the gas company served a notice, asking the mill to submit a payment plan along with down-payment and a firm assurance that it would settle the remaining dues.

In yet another notice in August, the company asked the mill to take necessary steps to arrange for the payment of outstanding bills on or before August 15. The notice said in the event of failure, SSGC would be compelled to not only discontinue the delivery of gas, but also cancel the sale agreement.

On its part, the steel mill said production at the plant dropped to zero on June 10 in the wake of reduced pressure of gas supplied by SSGC. Last month, Sindh Chief Minister Syed Qaim Ali Shah also phoned the SSGC managing director asking him to resume the provision of gas to the steel mill.

The steel mill says it requires an immediate injection of Rs2.2 billion to restore the letters of credit opened for raw material import as it has already defaulted on these payments. Another Rs2 billion will be needed to pay salaries to the employees for four months until September 2015. 

Published in The Express Tribune, August 16^th, 2015.

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