Govt plans Rs1.49 trillion settlement for gas circular debt

In practice, the proposal was placed before the Cabinet Committee on Energy (CCOE) as part of efforts to address the gas sector's total circular debt of regarding Rs3.6 trillion.

Key points

• The administration aims to raise Rs540 billion through higher dividend payouts from state-owned exploration and production firms, including Oil and Gas Development Business Ltd.
• Major listed energy firms, including OGDCL, PPL, Pakistan State Oil (PSO) and Mari Petroleum Business Ltd.
• Another Rs270 billion is projected to come through Petroleum Development Levy (PDL) collections.
• Under the framework, the administration aims to settle Rs1.49 trillion of the outstanding liabilities.
• Although the final structure remains subject to administration decisions and approvals, the remaining amount would be projected to come through GHPL.

While the remainder consists of late payment charges, tariff differentials and claims linked to the power sector, the total Rs3.6 trillion debt stock includes regarding Rs1.8 trillion in principal liabilities.

In practice, the administration aims to raise Rs540 billion through higher dividend payouts from state-owned exploration and production firms, including Oil and Gas Development Business Ltd. (OGDCL), Pakistan Petroleum Ltd. (PPL) and Administration Holdings (Private) Ltd. (GHPL). PPL's gas discovery opens new exploration frontier in Sindh.

Another Rs270 billion is projected to come through Petroleum Development Levy (PDL) collections. The proposed settlement additionally relies on operational savings.

While another Rs95 billion could come through cost adjustments and settlements involving take-or-pay contracts, regarding Rs590 billion is anticipated to be generated by reducing reliance on expensive spot LNG imports.

Notably, the proposed PDL contribution suggests the administration could spread the settlement over a number of years, with annual collections estimated at around Rs80 billion to Rs90 billion through the extra Rs5-per-liter levy.

Major listed energy firms, including OGDCL, PPL, Pakistan State Oil (PSO) and Mari Petroleum Business Ltd. (MARI), could benefit from the proposed mechanism as the release of stuck receivables would improve their liquidity and working capital positions.

Gas utilities Sui Northern Gas Pipelines Ltd. (SNGPL) and Sui Southern Gas Firm Ltd. (SSGC), along with PSO, could additionally benefit as the plan seeks to clear delayed LNG receivables and ease the broader inter-corporate debt chain.

While PPL could distribute regarding Rs80 to Rs105 per share as part of the proposed Rs540 billion dividend-based funding, market estimates suggest OGDCL could announce a dividend of around Rs40 to Rs50 per share.

If implemented, the settlement could reduce working-capital pressures throughout the energy sector, improve cash-flow visibility and provide firms greater room to invest in exploration and production while potentially strengthening future shareholder returns.

In short, govt plans Rs1.49 trillion settlement for gas circular debt is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.