Government Urges Gas Companies to Secure LNG Financing


To maintain a steady supply of LNG, the government has instructed Sui Northern Gas Company Limited (SNGPL) and Sui Southern Gas Company (SSGC) to arrange financing from banks. This move aims to assist Pakistan State Oil (PSO) in managing Letters of Credit (LCs) for LNG imports, according to a senior official from the Energy Ministry speaking to The News.

The financial strain on PSO has reached critical levels, with outstanding borrowings exceeding Rs461 billion and financing costs soaring to over Rs7 billion. With projections indicating a substantial increase in finance costs for PSO, the sustainability of the current setup is in doubt. Despite charging domestic consumers for RLNG prices under the Weighted Average Cost of Gas (WACOG) mechanism, gas companies have not reimbursed PSO for RLNG costs.

Under the LNG agreement with Qatar, PSO is responsible for LNG imports and payments. However, given the liquidity crisis, SNGPL and SSGC have been urged to secure loans to facilitate smooth LNG imports. Improvements in billing cycles and limited WACOG enforcement are expected to ease financial burdens on gas companies, enabling timely payments to PSO.

The liquidity crisis has left PSO with outstanding dues of Rs852 billion, primarily due to significant defaults from SNGPL totaling Rs571 billion, followed by Rs187 billion owed by the power sector.

To address the crisis, the Energy Ministry plans to arrange Rs50 billion for PSO immediately, with additional funds expected in March. Sui Northern will secure a loan to fulfill its obligations to PSO.

Previous instances, such as PSO borrowing Rs100 billion last January to ensure LPG supplies due to delayed payments from gas companies, underscore the urgency of the current situation. With PSO on the brink of default, the government emphasizes the need for gas companies to secure liquidity from commercial banks.

Disjointed billing and payment cycles, with gas companies taking 50-60 days to recover bills from consumers, exacerbate PSO’s challenges, particularly considering the need to settle LNG cargo payments within 10 days of offloading. In response, the government’s directive aims to alleviate financial strains and ensure the smooth functioning of LNG imports.

Story by Khalid Mustafa

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