Are the gas companies going concerns?

On October 19, the petroleum minister informed the National Assembly that Pakistan’s gas-sector obligations had reached Rs5.45 trillion by June 2026, comprising Rs3.6 trillion in circular debt and Rs1.8 trillion payable to gas and LNG suppliers. Late-payment surcharges account for Rs1.78 trillion of the circular debt, which increased by Rs344 billion during FY2026, largely because existing obligations remained unpaid.

These figures are alarming, but a more fundamental question is: whether Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC), which comprise fundamental part of Pakistan’s gas network, financially viable going concerns? Their accounts are far from reassuring: acute liquidity pressures, enormous receivables dependent on government settlements, large unrecognised surcharge claims and recurring accounting exemptions.

What the financial statements reveal

Neither company has published audited financial statements for June 2026. Both obtained extensions for their annual general meetings because OGRA had not finalised their revenue determinations, a recurring delay that undermines timely reporting under the Companies Act and the State-Owned Enterprises Act, 2023.

SSGC’s March 2026 accounts present a disturbing picture. Against assets of Rs1.173 trillion, the company reported liabilities of Rs1.165 trillion, leaving shareholders’ equity of barely Rs7.9 billion. Even this includes a property revaluation surplus of Rs59.8 billion; excluding it, equity is negative by approximately Rs52 billion. Current liabilities exceeded current assets by Rs168 billion. Cash stood at barely Rs1 billion, while short-term borrowings of Rs109 billion had virtually exhausted banking facilities of Rs110 billion.

Standalone profit for the nine months declined from Rs6.94 billion to Rs175 million, with losses in the last two quarters. Finance costs reached Rs12.25 billion, and regulatory disallowances for unaccounted-for gas, at Rs15.1 billion, were almost twice the company’s reported equity.

The quality of its assets is equally concerning. Other receivables amounted to Rs717 billion, including Rs553 billion in government-related tariff adjustments and Rs75 billion due from SNGPL, of which Rs4.28 billion has remained disputed since 2020. Overdue receivables from K-Electric and Pakistan Steel involve disputes dating back more than a decade, complicated by substantial counterclaims.

SNGPL appears stronger, with equity of Rs78.8 billion and nine-month profit of Rs10.1 billion. Yet its other receivables of approximately Rs898 billion comprise Rs547 billion in indigenous-gas tariff adjustments and Rs351 billion in RLNG adjustments, whose recovery depends on government settlements, future tariff increases or subsidies. Its short-term borrowings of about Rs162 billion compare with cash of Rs13.6 billion.

Reported profits and positive equity cannot, by themselves, establish viability. What matters is whether credible cash-flow forecasts and available financing demonstrate that the companies can continue operating and meet obligations as they fall due.

The trillion-rupee question

The most troubling disclosures concern late-payment surcharges that have not been recognised as liabilities. SSGC discloses Rs453.7 billion in unrecognised mark-up on gas supplied by OGDCL, PPL and GHPL, up about Rs83 billion in nine months. Management relies on Petroleum Ministry correspondence and legal advice that link its treatment to the eventual settlement of surcharge claims against K-Electric and Pakistan Steel.

SNGPL similarly discloses Rs559.8 billion in unrecognised interest owed to gas creditors, which OGRA has acknowledged but not included in revenue shortfalls pending government settlement of circular debt.

Together, these unrecognised claims exceed Rs1 trillion, compared with combined shareholders’ equity of only Rs87 billion.

Disclosure alone does not establish that every claim meets the criteria for recognition as a liability. But the magnitude demands an answer. If these are present obligations, why have they not been recognised; and if they are contingent or disputed, what evidence supports their exclusion?

They also appear to overlap with the minister’s Rs1.783 trillion in sector-wide surcharges. The government should reconcile these amounts across all companies, explaining differences between creditor claims, recognised liabilities, and unrecognised exposures. Even partial recognition could eliminate the companies’ reported equity.

Auditors and accounting exemptions

Both companies’ June 2025 financial statements carried qualified audit opinions for non-compliance with International Financial Reporting Standards (IFRS) 14, which addresses regulatory deferral accounts. SSGC’s opinion was also qualified over the recoverability of its K-Electric and Pakistan Steel balances, a qualification repeated for over a decade.

The unrecognised surcharges raise a further question: have the auditors adequately assessed the underlying legal obligations? Such claims do not automatically require a modified opinion, but their significance demands clear disclosure of the judgements made, particularly whether material uncertainties exist about the companies’ ability to continue operating.

In January 2026, SECP again exempted qualifying government-related circular-debt receivables from IFRS 9’s expected-credit-loss model, requiring IAS 39 instead, for financial years ending on or before December 31, 2026. For companies with a June year-end, the June 2026 accounts are the last it covers.

The irony is striking. IFRS 9’s expected-credit-loss framework emerged from the 2008 global financial crisis, when delayed recognition of losses concealed mounting risks. Pakistan keeps exempting its most exposed companies from precisely this safeguard.

With equity of only Rs7.9 billion, SSGC would lose all of it to an additional net impairment of about 1.1 percent of its Rs717 billion other receivables, before tax effects. This is an illustration, not an estimate, but it shows how thin the margin is.

Accounting standards should not be relaxed merely because compliance will reveal uncomfortable truths.

Where are OGRA and the boards?

OGRA’s delayed determinations have contributed to recurring delays in audited accounts. SSGC’s unaccounted-for gas rose to 13.51 percent in March 2026 from 12.86 percent a year earlier, while SNGPL recognised approximately Rs60 billion from re-pricing historical RLNG supplies, recoverable through tariffs. Does regulation promote efficiency, or merely determine how costs are passed on?

The boards must also account for their decisions. SSGC paid approximately Rs440 million in dividends for FY2025 despite accumulated losses of around Rs66 billion and severe liquidity constraints. Independent directors are responsible for challenging management and protecting financial integrity. Government ownership cannot excuse ineffective oversight.

Reform must begin with financial truth

Expensive LNG commitments, declining indigenous gas production, administered prices and cross-subsidies have compounded these problems. High tariffs have driven industrial consumers towards alternative energy sources, spreading fixed costs across fewer consumers and pushing tariffs higher still.

The government must begin with an independently reconciled gas-sector balance sheet, linking the Rs5.45 trillion in reported obligations to the accounts of individual companies. Both utilities should publish independently assessed proforma full-IFRS financial statements, quantifying the effect of withdrawing the exemptions on profits, equity and liabilities, together with realistic cash-flow forecasts and explicit going-concern assessments. The legal status of unrecognised surcharges must be resolved, and OGRA’s performance and the effectiveness of both boards independently reviewed.

Before asking consumers to pay more, the government must establish what these companies own, what they owe, what they can recover and whether they can continue operating without perpetual support.

Exemptions, deferrals and regulatory accommodations are window dressing. They postpone the reckoning and enlarge it. The remedy lies in transparency, and in addressing each problem at its source: pricing, theft, contracts and unpaid government dues.

Pakistan has spent years measuring its circular debt without resolving it. It has yet to ask, in earnest, whether the companies at the centre of the system are going concerns.

Copyright Business Recorder, 2026