As circular debt hits Rs444.5 billion, the financial crisis in the energy sector has been aggravated to the point where oil and gas exploration companies have been unable to engage in the process of finding new fields owing to a lack of cash.
“The current financial position of oil and gas exploration companies may hamper their efforts to explore new oil and gas reserves,” said one government official who wished to remain anonymous.
The lack of exploration activity could not come at a worse time for the country: according to government estimates, Pakistan’s domestic gas production capacity is expected to decline from the current 4,100 million cubic feet per day (mmcfd) to 1,600 mmcfd by 2022 as the existing gas reserves are depleted.
Power generation companies and refineries owe the domestic oil and gas production sector a whopping Rs303 billion for fuel, amount that includes about Rs52 billion in late surcharges and interest payments. The oil and gas companies themselves owe about Rs127 billion in payables to various suppliers.
The state-owned Oil and Gas Development Corporation (OGDC) – the largest company in Pakistan by market capitalisation – has about Rs123 billion that it is owed by refineries and gas distribution companies (Sui Northern Gas Pipelines and Sui Southern Gas Company).
OGDC is currently working on developing two major new oil and gas projects: Kunner Pesakhi and Uch-11. It needs about $600 million to complete those projects, an amount that is less than its 2011 net income of $739 million.
“But due to the circular debt issue, OGDC may find it difficult to arrange funds to carry out these projects that could help overcome energy crisis,” said one source familiar with the matter. OGDC, along with all other energy companies currently going through the circular debt crisis, recognise revenue for all the oil and gas it supplies to their clients, even if they have not yet received any cash. Hence, the paper profits of the firm exceed its actual cash flows.
Other state-owned oil and gas companies are also facing a financial crunch due to outstanding receivables. Pakistan Petroleum is owed about Rs42.5 billion, Government Holdings about Rs12.6 billion. Neither company has any amount it owes to other companies. Mari Gas Company is owed about Rs8.8 billion and itself owes Rs6.4 billion to its suppliers.
The power generation companies are not able to pay their bills because the government-owned power distribution companies have not been able to collect as much as Rs300 billion power bills, more than Rs155 billion of which is owed by government departments themselves. In addition, the government has promised the payment of power subsidies, which it is often unable to pay in full or on time.
Perhaps the worst affected company is Pakistan State Oil, the largest oil retailing and marketing company in the country. According to figures made available to The Express Tribune, the company is owed about Rs182.5 billion in unpaid bills by its clients, mainly the power sector. In contrast, the company itself owes about Rs71 billion, mainly to refineries.
SSGC is owed about Rs57 billion and itself has liabilities of about Rs43 billion. SNGP is owed about Rs18.4 billion and itself owes about Rs5.4 billion.
The circular debt issue has led to an interesting divide within the government. The petroleum ministry has been pushing hard for a resolution to the crisis, but the water and power ministry has so far refused to allow the kind of reforms that would be needed to alleviate the crisis in the long term. The finance ministry is somewhere in the middle, sympathetic to the petroleum ministry’s concerns but unwilling to pay up until the water and power ministry agrees to reform.
Published in The Express Tribune, December 6th, 2011.
COMMENTS (7)
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ
1714024018-0/ModiLara-(1)1714024018-0-270x192.webp)
The issue the Government can solve it but there is no will to do so. The easiest for them being in power is to make all those owe to former PEPCO to make payment immediately or else they would be put behind bars and would be released only when double the amount outstanding is paid. Secondly all persons engaged in stealing power be warned to sever the connection or else when caught would have to pay electricity bill for days they are staying in that place plus penalty amount. Failure to result in behind bars. Thirdly all power producing companies to be paid all their outstanding amount immediately so that they can produce electricity fullest. Fourth all subsidies to be withdrawn in whatever form it is provided. Fifth efforts be made to cancel contracts with Rental power companies who are not delivering power as the contract. Lastly full energy be placed in completing all ongoing hydro power units and tap gas reserves. With all these efforts the problem would be solved and the country would move towards growth and employment. The Government I am sure the next election if sincerity is shown to solve this problem immediately.
No money for oil and gas exploration yet a potential $2 billion investment was refused in coal sector because investor has Indian nationality.
This is all chump change. US compensation to restore the supply route will wipe out this circular debt...
It doesn't take a rocket scientist to figure out that if you don't pay your power bill that eventually the people who provide and distribute power go out of business. If you don't pay your taxes eventually the govt runs out of money and can't provide services. It's one of those basic things that somehow eludes Pakistani's. Pakistan doesn't have money - isn't considered credit worthy - and is losing the friendship of it's prime backer - perhaps it's time to wake up and smell the roses.
This goes on and on and I find it astonishing that there is no solution.
And we wonder why growth is low?!
It would help if everyone from the President's establishment down paid their bills. That is a form of theft.
Every thing will dry up, on its current course of economic policies !!!
what a joke our economy has become..