ISLAMABAD: Sui Northern Gas Pipeline Limited (SNGPL) has sought Petroleum Division’s support for finalisation of gas cost equalization arrangement with SSGC and full finance cost of short-term borrowings for RLNG in the RLNG price structure to enable full cost recovery.
In a letter to Director General (Gas) Petroleum Division, Chief Financial Officer SNGPL has stated that the company has issued a letter to PSO, affirming the commitment of its Board of Directors and Management.
The letter states: “We are fully committed to making payments to all creditors, including PSO, and will continue to make every effort to ensure the continuity of the RLNG supply chain in the country.” The Chief Financial Officer (CFO) of SNGPL further explained in the letter that the accumulated payment shortfalls to PSO over the past years are not a result of inefficiency or mismanagement by SNGPL.
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Instead, these shortfalls have accumulated due to several factors, including the diversion of RLNG to the domestic sector, non-payment by SSGCL for RLNG it retained, cost equalisation issues, delays in the release of subsidies from the government for RLNG supplied to the fertiliser sector, significant sales tax receivables and refunds, and considerable amounts held by the power sector.
Additionally, as a regulated, cost-plus entity, SNGPL has faced delays in the approval of its legitimate costs by OGRA. To address these challenges, SNGPL has already borrowed over Rs. 145 billion.
SNGPL emphasised that since the gas price revision in November 2023, it has consistently honoured its payment commitments to PSO. From July 2023 to December 2024, the company paid approximately Rs. 1,821 billion against a total billing of Rs. 1,824 billion, reflecting payments aligned with the value of supplies made by PSO, despite an accrual of fertiliser subsidies amounting to Rs. 43 billion from November 2023 to the present.
However, during the winter months, SNGPL has faced difficulties in meeting its full payment obligations to gas suppliers, including PSO. In December 2024, SNGPL was able to pay Rs. 94 billion against an estimated bill of Rs. 105 billion, resulting in a shortfall of Rs. 11 billion. A similar shortfall is expected in January 2025, with a projected deficit of Rs. 25 billion in payments to RLNG suppliers, in addition to the carryover shortfall from the previous month.
The key factors contributing to this financial strain include:
Diversion of RLNG to the domestic sector: During the winter season, increased demand and limited indigenous gas availability have forced SNGPL to divert substantial volumes of RLNG to the domestic sector. This diversion creates a mismatch between the high cost of RLNG and the low tariff recovery from the domestic sector.
Although the cost of RLNG diversion is factored into consumer prices, recovery is spread over six months, leading to a short-term shortfall.
Reduced demand from the power sector: A decrease in demand from the power sector has resulted in excess RLNG being diverted to subsidised sectors, exacerbating the under-recovery of costs and compounding SNGPL’s liquidity challenges.
Pending gas cost equalization with SSGCL: SSGCL’s reluctance to implement the gas cost equalisation agreement has worsened SNGPL’s financial situation. Despite repeated escalations to SSGCL and the Ministry of Energy (Petroleum Division), this issue remains unresolved, further straining the payment cycle.
Unapproved finance costs by OGRA: Although OGRA has agreed in principle to include finance costs on short-term borrowings for RLNG payments, it has yet to fully incorporate these costs into consumer prices. As a result, SNGPL has absorbed approximately Rs. 35 billion in finance costs from its own resources, severely affecting liquidity. Additionally, the company’s debt-equity ratio limits its ability to secure further borrowings, with its current debt load standing at Rs. 145 billion.
The CFO of SNGPL emphasised that the company has repeatedly approached the Ministry of Energy (Petroleum Division) through various communications and meetings, seeking support and intervention to resolve these critical issues. In a recent urgent appeal, SNGPL requested immediate intervention from the Ministry to address these matters and ensure uninterrupted RLNG supply and full payments to its gas suppliers.
Copyright Business Recorder, 2025