ISLAMABAD: K-Electric (KE) has sought immediate payment of Rs 25 billion from the federal government to clear outstanding amount of SSGC as the latter has threatened to encash bank guarantee of Rs 6 billion provided by former as security deposit in addition to immediately reducing gas supplies by 10 MMCFD on daily basis, which may increase load-shedding.
This was the crux of two letters separately written by KE to Finance Minister, Dr. Miftah Ismail and Managing Director SSGC to Secretary Petroleum, Ali Reza Bhutta.
KE’s Chief Regulatory Affairs and Government Relations Officer, Imran Qureshi, in his letter to Finance Minister, has given reference to SSGC’S letter of June 9, 2022 through which the gas utility has intimated curtailment in gas supply to KE, a meeting of June 07, 2022 and previous correspondence for release of KE’s outstanding Tariff Differential Subsidy (TDS) claims.
KE argues that due to the continuous accumulation of KE’s TDS claims, its cash flow position is significantly strained and the company’s total borrowings have reached an unsustainable level of Rs 261 billion, which includes Rs 141 billion mainly on account of working capital requirements.
Whilst the banks have financed the historical increase in fuel prices, on one hand exposure to KE has already reached an alarming level and on the other the lending capacity of majority of the banks has already been exhausted due to which KE is no longer in a position to finance the existing and incremental price hike, he added.
Power utility has urged on government for immediate release of at least Rs 25 billion, enabling it to manage the company’s severely constrained cash flow position and keep the operations afloat by making payments to fuel suppliers.
“Due to the precarious situation, any delay may significantly impact the sustainability of KE’s operations, resulting in a potential power supply crisis for Karachi, the ramifications of which would be far-reaching for the city’s residents and businesses,” Qureshi maintained. Earlier, Imran Munir, Managing Director, SSGC in a letter to Secretary Petroleum stated that the gas utility is supplying gas to KE on best endeavour basis on a commitment to pay the gas bills on due dates since 2012, as a consequence of order of Sindh High Court. Accordingly, gas supplies and payments therein were honoured by both the parties from July 1, 2012 with minor exceptions.
KE has recently started to default in making timely payments to SSGC against RLNG weekly gas bills. The default started on May 26, 2022 and is continuing. KE has only paid Rs. 750 million against last bill of Rs. 8.631 billion leaving an outstanding balance of Rs. Rs 7.881 billion.
According to MD SSGC, KE also defaulted in March 2020 against RLNG gas bill of Rs 1.015 billion due on March 26, 2020 and linked the default and future gas bill payments to realization of Tariff Differential Subsidy from the Government of Pakistan (GoP); however, with the intervention of Federal Government, SSGC was successful in realizing its over-dues. Petroleum Division, well aware of the fact that SSGC is severely trapped in circular debt crisis, delays in the revision of gas prices, causing huge funds stuck in Gas Development Surcharge (GDS) of Rs 248 billion. SSGC is facing recovery issues from major industrial customers who have obtained stay against increase in gas prices and an amount of Rs. 30 billion is stuck due to court stays which has affected its already precarious cash flow position and has posed a negative impact on its pattern of payments to suppliers.
He maintained that significant old receivables from KE and PSML are also amongst the unresolved chronic issues and adding misery to cash flows of SSGC. Huge funds stuck in tax refunds is another long outstanding issue.
“KE default is causing delay in SSGC ability to make timely payments to SNGPL against RLNG retention, which will ultimately hamper the LNG supply chain and may add to situation of an international default,” he claimed.
Copyright Business Recorder, 2022