EDITORIAL: The “cash flow crisis” threatening petroleum sector exploration and production (E&P) companies, forcing them to substantially reduce seismic activities and cut operations by 50 percent, hasn’t just leapt out of the air. For, long before Pakistan Petroleum Exploration and Production Companies (PPEPCA) wrote to caretaker Energy Minister Mohammad Ali about an impending gas supply crisis — just when the government’s own fiscal problems will prevent the same old trick of buying expensive LNG at the 11th hour – they also warned the finance and energy ministers of the former PDM coalition. But nothing was done about the “acute crisis owing to the default of the Sui gas companies”.
Now, outstanding receivables of PPEPCA member companies OGDCL, PPL and GHPL, as of 15 August 2023, have risen to Rs1.361 trillion ($4.4 billion). This crunch is forcing these companies to borrow at very high rates, between 25 and 30 percent, to run gas production operations and leaving them with no option but to shut down much of their planned exploration and development drilling operations. So, the writing on the wall is clear.
Failing urgent payments by the defaulting companies, there will be a major cutback in gas supply and therefore a very serious crisis. Yet it’s also clear that the government has neither the cash nor the authority – thanks to the IMF programme – to bail out the Sui gas companies like before. Therefore, there’s no choice but to brace for yet another crippling crisis.
The inability of the previous government to take timely action is one of those things that are truly shocking, yet still not really surprising, about Pakistan’s brand of democracy. At the heart of the Sui companies’ fiscal paralysis is the policy of not revising consumer prices enough to cover their revenue requirements.
And the coalition government, most likely, didn’t want to take any unpopular steps after it had already alienated and infuriated the public with expensive petrol, expensive electricity and even an incrementally expensive dollar. That means, in all likelihood, that the gas supply crunch will be accompanied by substantially revised consumer prices as well.
PPEPCA has already asked the caretaker government to ensure the provision of a budgetary grant/tariff differential subsidy (TDS) of at least Rs 500 billion to the Sui companies for partially adjusting accumulated revenue shortfall, eventually facilitating upstream companies in meeting their operating expenditure and carrying out planned activities.
It has also demanded an increase in the consumer gas price to meet revenue requirements of Sui companies which have been increasing due to high international oil prices, currency devaluation, etc.
If this puts the caretaker setup in a fix, consider, for a moment, the lot of the common man, which includes both producers and consumers. Highest inflation and unemployment in the country’s history, extremely expensive electricity and fuel, unprecedented cost of living and running businesses, and now the prospect of very limited and very expensive gas also.
So great is the combined pressure of all these problems, and so little time available to settle them and improve the economy’s fiscal health, that it seems the window of time in which reforms could be initiated has all but slammed shut.
Unfortunately, the people can do no more than lament the fact that government after government looked the other way as these crises grew out of control and now they, ordinary Pakistanis who gained nothing from the circus at the top, must pay for all the blunders.
The state’s leading institutions need to realise that this situation is stoking the kind of anger they have never confronted before. They got a hint in the riots over inflated electricity bills just a few days ago. Now they must prepare for a lot more, lot worse agitation.
Copyright Business Recorder, 2023