SSGC instructed to claim dues from KESC

If KESC fails to pay up, gas supplier will suspend supply, take legal action.

KARACHI:

Federal Minister for Petroleum and Natural Resources Dr Asim Hussain has instructed Sui Southern Gas Company’s (SSGC) to take all possible steps to ensure that Karachi Electric Supply Company (KESC) starts to settle its dues.

The minister reiterated that the SSGC must inform the KESC in clear terms to sign the term sheet. If KESC refuses, the gas supplier will be entitled to curtail gas and take requisite legal action. Hussain was chairing a joint board meeting of SSGC and Sui Northern Gas Pipelines (SNGPL) at the SSGC house, Karachi on September 1, 2012, a press release on Saturday said.

SSGC Chairman Salim Abbas Jilani and SNGPL Chairman Mian Misbahur Rehman led their respective boards during the meeting.  Major issues related to both companies’ return on assets and accruing KESC’s payables were discussed in the joint meeting during which the minister issued remedial instructions.

KESC’s inability to clear past payments to the SSGC led to the gas supplier’s receivables mounting to a staggering Rs39 billion, including late payment surcharge legally due to the creditor.

KESC’s failure in settling its accruals has made it increasingly difficult for the SSGC to make payments to local and foreign energy and power companies from which it purchases gas; a scenario that is clearly adding to the circular debt and leading to an imminent default. However, KESC has been keeping up with current bill payments only.

SSGC’s directors confirmed to the federal minister that a term sheet was dispatched to Karachi’s power distribution company two weeks ago.

Addressing the joint boards, Hussain said that the government wants both the companies to deal with liquefied natural gas and synthetic natural gas projects on priority so that gas shortages can be mitigated.

He also asked the SSGC to expedite the work on solar energy geysers, by entering into joint venture with specialised firms. “To get out of the current natural gas crisis, it is important for both the companies – SSGC and KESC – to take immediate measures and initiatives,” he added.

Earlier, Hussain reiterated that the boards of SSGC and SNGPL were autonomous, independent and empowered and should conduct their business on purely common considerations.

They should thus scrap the current return on assets formula, and instead adopt a margin on sale of gas formula to not only bring gas tariffs under control, but reducing the impact of volatility in gas prices for the consumer and releasing considerable pressure on operating margins of both organisations, Hussain suggested.   He added that both companies must draft a proposal which will be presented to Economic Coordination Committee for approval.

Published in The Express Tribune, September 2^nd, 2012.