The Stock of Circular Debt

The exact figure for the sector’s circular debt is unavailable because of the delay in the publication of financial accounts by the two gas companies. However, energy sector analysts use the receivables from the twin Sui companies on the books of Oil and Gas Development Company (OGDC) and Pakistan Petroleum Ltd (PPL) as a proxy to measure the quantum of the circular debt. Going by this proxy, the circular debt within the gas segment amounted to Rs534.97bn at the end of June 2021, up 5.6 per cent from a year ago.

OGDC’s receivables from SNGPL and SSGCL amounted to Rs273.7bn at the end of June. The corresponding figure on PPL’s balance sheet was Rs261.27bn.

Possible solution

Presenting a “quick fix” for the immediate reduction in the circular debt in the gas sector, Mr Gauhar called for injecting capital through SSGCL and SNGPL into PPL and OGDC, which happen to be the last companies in the circular debt chain.

A partial conversion of their tariff differential into public debt in the form of Pakistan Investment Bonds and Sukuks will enable the twin Sui companies to clear the liabilities of OGDC and PPL.

“Both these companies, directly or indirectly, are almost 80pc owned by the government. Roughly the same amount (of public debt) will flow back to the government in the form of an extraordinary dividend,” he suggested, noting that cleaning up the balance sheets of energy companies will add to the capacity on their balance sheets to borrow money in the future.