The caretaker government was told on Thursday that the Pakistan Peoples Party (PPP) – led government has left behind an oil and gas sector on the verge of default because of swelling receivables of Rs524 billion and a herculean task for the interim setup to fix it.
According to the documents tabled before a meeting chaired by the Caretaker Petroleum Minister Suhail Wajahat, the circular debt – receivables minus payables – was calculated to be a whopping Rs364.78 billion, leaving the oil and gas firms on the risk of defaulting.
Documents revealed that the country’s largest oil and gas explorer – Oil and Gas Development Company (OGDC) – was dug in deep as its receivables amounted to Rs147.42 billion from oil refineries, gas companies and power producers. However, OGDC had no liabilities but the liquidity crunch due mounting receivables could hurt the company.
A senior official said that the OGDC’s liquidity crunch had grown to a point where other oil and gas firms were facing issues in running their operations due to lack of cash.
“Current financial position of oil and gas exploration companies may hamper their efforts to explore new reserves to overcome the energy crisis,” said a government official, who wished anonymity.
Government’s estimates say that Pakistan’s domestic gas production capacity is expected to decline from 4,100 million cubic feet per day (mmcfd) presently to 1,600mmcfd by 2022 as existing gas reserves are depleted. “If future exploration activities are hampered, there will be not enough gas to meet domestic requirements,” the official added.
Furthermore, financial position of another oil giant Pakistan Petroleum (PPL) was worse than it looks as receivables stood at Rs66.69 billion, but the company did not have any payables. “These two firms (OGDC and PPL) are major suppliers of oil and gas in the country and if they default, further exploration activities could stop, which will aggravate the energy crisis,” the official said.
Other state-owned oil and gas companies were also facing the brunt of the liquidity crunch due to mounting receivables. Government Holdings is owed Rs24.6 billion with zero payables, while Mari Gas Company is owed Rs24.71 billion and has liabilities of Rs17.9 billion to its suppliers.
Power producers have not been able to pay their dues against supply of oil and gas because the state-owned power distribution companies failed to collect Rs425 billion worth of power bills, whereas on the other hand the PPP-led government had tasked the National Accountability Bureau to recover Rs100 billion from defaulters.
Pakistan State Oil (PSO) was perhaps the worst affected company as according to official figures, PSO’s receivables were Rs114.67 billion on account of outstanding bills of its clients, mainly the energy sector. The company itself owed Rs22.17 billion to local refineries.
Sui Southern Gas Company is owed Rs92.036 billion and is liable to pay Rs61.55 billion, whereas Sui Northern Gas Pipelines is entitled to receive Rs54.097 billion and pay Rs57.8 billion.
The circular debt issue had led to an interesting division within the government. The petroleum ministry had been pushing hard to resolve the issue, but the power ministry had refused to allow any reforms that were needed to alleviate the crisis in the long run and placed the power sector under wing of the Water and Power Development Authority.
“The Ministry of Finance is also in trouble and does not know how to come up with the money to clear the circular debt because it had given Rs254 billion for the ongoing financial year,” the official added.
Published in The Express Tribune, April 5th, 2013.
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