The Sui Southern Gas Company (SSGC) has portrayed the Karachi Electric Supply Company (KESC) as a worst client, in terms of payment of longstanding dues, official sources told Business Recorder.
"KESC's over-dues have increased alarmingly to Rs 21.642 billion, compared to Rs 15.8 billion in last year. This amount is unsecured, as there is no Gas Sales Agreement (GSA) with KESC, while as it was previously a government entity it was not required to deposit the prescribed security amount," sources said. They said that SSGC has been sending notice after notice to the KESC, but the payment situation has not improved.
"Our efforts at negotiating and finalising a GSA as per standard terms and conditions have also not made requisite headway," sources quoted Azim Iqbal Siddiqui, an official of SSGC, as saying in a letter to Secretary Petroleum, Imtiaz Qazi.
Recently, SSGC Managing Director gave a presentation to Secretary, Petroleum, in respect of company's administrative and financial affairs. The company drew attention towards major issue of circular debt that SSGC continues to face on daily basis and which may lead to default on payments to the multinational exploration and production companies (E&P) covered under the sovereign guarantee.
SSGC purchases gas from local and foreign E&P companies. These purchases are governed through Gas Sales and Purchase Agreements (GSPAs). The Government of Pakistan (GoP) guarantees full performance of SSGC's payment obligation in all GSPAs with multinational E&P companies, which is around Rs 7 billion per month. "As was briefly indicated in the presentation, continuing circular debt issue is leading to major payment default by KESC, Wapda, SNGPL and blocked sales tax refund. This, in turn, has put SSGC in severe liquidity crisis and, as a result, SSGC has been defaulting in making timely payments to the public sector E&P companies (OGDC, PPL and GHPL)," sources added.
The receivables have reached staggering levels as follows: KESC, Rs 21.642 billion; Wapda (JPCL), Rs 7.237 billion; Wapda (Quetta), Rs 467 million; SNGPL Rs 4.523; Pakistan Steel Rs 2.149 billion and sales tax receivables Rs 4.510 billion. The company's total receivables are Rs 40.528 billion. SSGC's payables are as follows: OGDC Rs 13. 974 billion; PPL Rs 7.088, GHPL Rs 6.464 and Gas Development Surcharge Rs 2.700, totalling it to Rs 30.226.
Sources said that 'reformed general sales tax' (RGST/VAT) being implemented from November 2010, prescribes that adjustment (as input sales tax) would be allowed only if full invoice payment is made within 6 months from the date of invoice.
This position had made SSGC liable to pay nearly Rs 12 billion towards overdue gas bills of OGDC, PPL and GHPL by 30 September 2010. "In this situation no recourse is available but to default in payments to foreign E&P companies just to clear bills of OGDC, PPL and GHPL which are overdue for more than 6 month," sources added.
The company further said that default on international obligation under sovereign guarantee would create negative image for the company as well as the country.
"We request your intervention in this extremely serious matter by impressing upon the Ministry of Water and Power, Ministry of Finance and Federal Board of Revenue to release the overdue amounts to SSGC on most urgent basis, so that obligations towards foreign E&P companies due at the end of the month under sovereign guarantee and amount due on RGST/ VAT implementation can be released immediately," sources quoted the SSGC's senior official as pleading in the letter.
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