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Proposal to reduce gas circular debt under study

Asad Iqbal by Asad Iqbal
October 10, 2021
3 min read
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Proposal to reduce gas circular debt under study

WACOG is the pricing mechanism that takes into account the blended costs of both indigenous and imported gas as opposed to the current pricing method. — DhartiNewsTV/File

KARACHI: The contentious proposal to adopt a ‘heavy typical expense of gas’ (WACOG) to minimize the rapid build-up of the round debt in the gas sector is going to get a “severe push” soon.

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” It’s a political hot potato … I’m told that within a few months there’s going to be a significant push on the political side to get (WACOG) via,” stated Tabish Gauhar, who recently stepped down as special assistant to the head of state on power as well as oil.

WACOG is the pricing mechanism that considers the blended prices of both indigenous as well as imported gas in contrast to the current rates method, which ring-fences using imported gas. The gas-producing, smaller sized districts have actually been opposing WACOG due to the fact that they believe it will benefit Punjab at their expenditure.

Ex-PM aide terms WACOG a warm political potato Talking at a current webinar, Mr Gauhar said the key reason for the expanding inter-corporate financial obligation in the gas field is the gap between the rate at which the gas is imported as well as the subsidised rate that a disproportionately big section of consumers spends for it.

The stock as well as the flow of the circular debt have actually been climbing for the last three years as the nation diverts imported RLNG materials to the residential market every winter season. Some of the domestic-sector consumers pay as reduced as Rs120 a system compared to the imported cost of Rs2,000, he said. “The round financial obligation rose by Rs100 billion over the last 3 years just for the domestic field,” he claimed.

Likewise, allowing the export-oriented sectors melt gas at $6.50 per million British thermal devices (mmBtu) although the imported rate on a weighted average basis has to do with $13 amounts to Rs30-35bn annually to the circular debt

Although the regulatory authority keeps identifying earnings demands for Sui Southern Gas Business Ltd (SSGCL) and Sui Northern Gas Pipelines Ltd (SNGPL) each year, there’s been no increase in gas prices over the last 2 years. “There’s a large lag which’s why the round debt keeps accumulating,” he said.

The supply of circular financial debt.

The specific figure for the field’s round financial debt is inaccessible as a result of the hold-up in the publication of monetary accounts by the two gas companies. Nonetheless, power

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sector analysts utilize the receivables from the twin Sui companies on guides of Oil and Gas Growth Business (OGDC) and also Pakistan Oil Ltd (PPL) as a proxy to measure the quantum of the circular financial obligation.

Passing this proxy, the circular financial debt within the gas sector totaled up to Rs534.97 bn at the end of June 2021, up 5.6 per cent from a year ago.

OGDC’s receivables from SNGPL and also SSGCL totaled up to Rs273.7 bn at the end of June. The matching figure on PPL’s annual report was Rs261.27 bn.

Possible option

Offering a “quick fix” for the instant decrease in the circular debt in the gas field, Mr Gauhar required injecting funding via SSGCL as well as SNGPL into PPL and OGDC, which occur to be the last firms in the round financial debt chain.

A partial conversion of their tariff differential right into public debt in the form of Pakistan Financial investment Bonds and also Sukuks will certainly allow the twin Sui business to clear the liabilities of OGDC and PPL.

“Both these firms, directly or indirectly, are virtually 80pc possessed by the federal government. Approximately the very same quantity (of public debt) will recede to the government in the form of a remarkable reward,” he suggested, keeping in mind that tidying up the balance sheets of power companies will certainly include in the capacity on their annual report to obtain cash in the future.

Tags: gas circular debt under studyProposal to reduce gas circular
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Asad Iqbal

Asad Iqbal

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