THE government’s failure to seriously tackle the menace of circular debt is now threatening to pull down the profitable public-sector oil and gas firms. In a call for help, the Petroleum Division has warned the government of a looming energy crisis unless steps are taken to resolve the cash troubles of companies like PSO, OGDCL, PPL, Pakistan LNG Ltd, SNGPL and SSGC emanating from power-sector debt. These firms are owed Rs1.6tr and face a bleak future unless their financial troubles caused by non-payment of their dues from the power sector, refineries and gas sector are taken care of very quickly.

“Inaction can lead to the collapse of some of the otherwise profitable entities, causing a major disruption in the supply chain. They are at the stage that they might resort to ceasing supply of crude oil, furnace oil, LNG and gas in the foreseeable future,” the Petroleum Division letter to the Economic Coordination Committee warns. Further, it says, the increase in the financial cost arising from delayed recovery from the power sector is adversely affecting the profitability of PSEs with the risk of bad debts resulting in possible bankruptcy. In response, the ECC has set up yet another committee for working out the modalities of tackling the debt issue holistically and averting a possible collapse of the state-owned entities. The panel has been instructed by the ECC to prepare a “well-rounded” proposal to settle the issue in the next one month.

The committee is likely to also consider the Power Division’s proposals for adjustment of the debt. Some of the suggested solutions could ultimately punish consumers for the failure of the government to fix the energy sector. The division has, for example, proposed a new levy on gas prices for settlement of the SSGC and SNGPL debt. It has also sought permission for OGDCL, PPL and GHPL to discharge their obligations of sales tax and royalty payments on the ‘collect-and-pay’ model as temporary relief, and issue large chunks of Sukuk against the entire debt amount. Additionally, it has suggested the settlement of gas development surcharge payable by PPL on gas sales to generation companies through adjustments against its receivables. The Petroleum Division has also sought adjustment of debt with equity in profitable PSEs, power projects and companies in the energy supply chain. These proposals may tackle the financial troubles of the energy suppliers and distributors, but the larger problem of circular debt in the power industry will remain. The liquidation of the existing debt stock of Rs2.3tr is crucial to ensure the industry’s sustainability. But that will be futile unless inefficient power distribution companies are reformed to stop the future flow of debt, electricity demand is increased to help cut capacity payment charges and prices are reduced to encourage industrialisation for growth and employment. The government has taken a few steps in this direction. But it still has a long way to go.

Published in Dawn, November 7th, 2020