Gas market opening to slash circular debt

Estimates suggest Rs71b annual debt reduction, Rs13b revenue for govt

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ISLAMABAD:

The Special Investment Facilitation Council (SIFC) has facilitated the energy sector by opening gas market for the private sector, which is expected to contribute Rs71 billion per year to circular debt reduction. Additionally, the government will collect Rs13 billion annually on account of sales tax.

These remarks were made by Universal Gas Distribution Company CEO Ghiyas Abdullah Paracha.

Circular debt, which has plagued the energy sector for decades, has now crossed Rs1.6 trillion. Exploration and production (E&P) companies are owed $700 million owing to delay in payments by clients and gas curtailment. The recent decision of selling 35% gas, found by exploration firms, to a third party will help to resolve such non-payment issues. Earlier, oil and gas exploration companies were allowed to sell 10% of gas to third parties, which the current government increased to 35% in a bid to open the market and improve cash flow for energy firms.

When contacted, Paracha, who is also a member of a special committee led by Deputy PM Ishaq Dar, praised the pivotal role of SIFC that facilitated critical reforms in the gas sector.

"With SIFC's consistent involvement, support and consultations with companies and stakeholders, policies and decisions are being implemented successfully," he said. These "efforts will rejuvenate the energy sector and put Pakistan on the road to rapid development."

Paracha said in case of 100 million cubic feet per day (mmcfd) of gas supply, companies would pay approximately $255.5 million in advance, equivalent to around Rs71.28 billion. This prepayment will prevent the accumulation of circular debt.

Another key benefit is the increase in government revenue through sales tax. This policy is expected to generate roughly $46 million, or around Rs12.81 billion, in sales tax. Additionally, it will help save foreign exchange.

"If even one LNG (liquefied natural gas) cargo is not imported, the country can save about $400 million, or around Rs111 billion, in a year. This will significantly bolster the national exchequer," he added.

Background discussions with officials of oil and gas exploration companies revealed that the government and gas firms would benefit significantly from the participation of private sector in gas marketing, distribution and sales. This collaboration will accelerate the development of Pakistan's energy sector and enhance self-reliance. They said that through the implementation of the new policy, the problem of circular debt would largely be resolved, potentially eliminating it from the gas sector.

It will also have a positive impact on the cash flow of E&P companies, which will encourage further investment. Consumer gas prices are expected to fall gradually while earnings of gas companies will improve. Experts added that risks associated with new gas supplies would be reduced to zero and the unaccounted-for-gas will go further down.

Moreover, they said, the government would no longer be required to subsidise any sector as the policy will attract more private companies and foreign investors. The government has laid the foundation; now the private sector must collaborate to drive the policy forward.