Sui Southern Gas Company Limited (SSGC) is in a financial fix following Karachi Electric Supply Company's (KESC) refusal to pay Rs 11 billion Late Payment Surcharge as well as a default on payment of bills amounting to Rs 37 billion, well informed sources told Business Recorder.
The situation was recently discussed at a meeting of Board of Directors (BoD) of the gas entity. Giving details, sources said KESC owes SSGC approximately Rs 48 billion plus current bill for the gas supplied. This includes Rs 11 billion for Late Payment Surcharge. SSGC borrows from the commercial market to be able to continue paying gas producers. An official has claimed that SSGC's outstanding amount of Rs 48 billion is more than the total equity of KESC.
In the last financial year, KESC wrote off the Rs 11 billion from its books of accounts maintaining that since they do not get LPS from the government they will not pay LPS to SSGC, the sources continued. KESC even filed audited accounts which show Rs 8 billion profit with SECP. SSGC has challenged the unilateral step of KESC as the former is a Public Ltd company with a substantial equity holding from the private sector.
"KESC's stance not to pay LPS is extremely dangerous as the equity of SSGC and earnings will be wiped out and SSGC will no longer remain a going concern if this accrued interest is written off. SSGC will have to pay the instalments of the loans as well as mark up. SSGC has borrowed from the market to pay the foreign gas suppliers," the sources continued.
According to sources, in view of a serious situation, the SSGC Board had curtailed supply of gas to KESC at 120 MMCFD pending resolution of the arrears with an agreed payment plan and acknowledgement of the interest due. However, due to pressure from the Sindh government and a political party SSGC's management increased the supply of gas to KESC to 170-180 MMCFD from May 1, 2013.
These facts were revealed by a Board Member on May 24, 2013 and an emergent board meeting was held wherein it was decided that KESC should pay between 1.25 and 1.35 times the current bill in return for increased supply to be set off against old receivables. It was decided to leave the matter of LPS pending for resolution separately. The Board had asked that the payment for gas by KESC should be made in advance. The matter was discussed and decided at a meeting with the Governor Sindh at which KESC reportedly agreed to pay 1.3 times the current bill but not in advance.
The Board had decided that KESC would pay Rs 1 billion by May 31, 2013 and an additional amount of Rs 3.5 billion by June 30, 2013 in addition to payment of regular monthly bill on time. KESC did not pay the agreed amount, saying that it would be paid next month.
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