Govt clears Rs82b circular debt to OGDCL

The government has approved a payment of Rs82 billion to the Oil and Gas Development Company Limited (OGDCL) to address circular debt, enhancing the company’s ability to expedite its oil and gas exploration activities in Pakistan.

In a notification to the Pakistan Stock Exchange (PSX) on Thursday, the country’s largest oil and gas exploration firm reported, “We are pleased to inform that, as part of the circular debt settlement plan, the Government of Pakistan (GoP) has approved payment of Rs82 billion to… OGDCL, representing the principal amount of the company’s investment in Privately Placed Term Finance Certificates (PPTFC) issued by Power Holding (Private) Limited (PHL).”

Additionally, the government has approved the repayment of interest totalling Rs92 billion in 12 equal instalments starting in July 2025. As part of the settlement, OGDCL has agreed to waive Rs72 billion in liquidated damages at the government’s directive. OGDCL subscribed to these certificates to settle its overdue receivables from oil refineries and gas companies. “The GoP’s initiative aimed at resolving the circular debt issue paves the way for sustainable growth and enhances shareholder value,” the notification reads.

Sunny Kumar, Deputy Director of Topline Research, commented that clearing the overdue through the maturity of the TFCs would further improve the company’s cash flow position. “We believe these funds will either be used for announcing dividends, diverted for exploration activities, or for clearing other pending payables.” Recently, OGDCL announced a partnership with a foreign technology firm to better plan oil and gas exploration activities and improve controls over emissions in the country, indicating the local firm’s plans to expedite its drive for the discovery of hydrocarbons.

Kumar further noted that the government is planning an offshore bid round in 2024, where 12 blocks, including shallow water, deep water, and ultra-deep water blocks, will be offered in competitive bidding. These blocks will require higher capital expenditure commitments.

In 2013, the government approved the issuance of TFCs worth Rs82 billion by PHL to partially reduce circular debt in the energy sector. Initially set to mature in seven years, the tenure was extended to ten years until June 2023.

On the payables side, OGDCL owes Rs30.5 billion (Rs7/share) to the government for pending royalty payments. The improved cash flows may also be used to settle these royalty payments. Furthermore, as the markup payment is delayed until July 2025 instead of July 2024, “OGDCL has to book an estimated loss of Rs24 billion in FY24 under IFRS 9, albeit it is a non-cash expense,” according to news reports.