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Non-payment by KESC may bankrupt SSGC
The NEWS Karachi
Tuesday, October 05, 2010
Karachi
Sui Southern Gas Company (SSGC) said on Monday that it may go bankrupt if the Karachi Electric Supply Company (KESC) refuses to pay its dues.
According to a statement issued by the SSGC, the KESC dues have reached a total of Rs6.3 billion. KESC had committed to pay this amount in monthly instalments.
“In 2009, KESC entered into an accord with the SSGC for payment of outstanding balances amounting to Rs12.23 billion. To date, KESC has failed to honour its own agreement while on the other hand, SSGC, despite being the aggrieved party, continues to fulfil its commitment towards helping the KESC meet its gas requirements.
“Due to stubbornness on the part of the KESC, SSGC today is caught in the vicious cycle of circular debt which is showing no signs of abating. Despite reluctance on the part of the KESC to settle receivables amounting to Rs20.6 billion, the gas utility is meeting all its commitments by supplying gas to Bin Qasim power station and rest of the power plants of the KESC simply because it does not want Karachi, Pakistan’s biggest gas load centre, to suffer because of the KESC’s obstinacy.
“To date, KESC does not have a Gas Supply Agreement (GSA), while SSGC stresses that it wants to expedite the negotiations between the two companies. Unfortunately, the KESC wants to do so on its own terms rather than agreeing on a standard mutually worked out agreement. As per the requirements of Oil and Gas Regulatory
Authority, the end user of gas has to provide a bank guarantee which is also referred to as Gas Security Deposit (GSD). This GSD is cash equivalent amount of three months of gas sales, which in quantitative terms amount to approximate Rs 9 billion, which the KESC is not willing to commit itself to. In general, all the end users provide three months’ billing amount as gas supply deposits. KESC’s failure to sign on the GSA is unfortunate and makes the receivables position highly vulnerable,” said the SSGC spokesman.
He recalled that at the three-day Energy Summit held in Islamabad in April 2010, which was chaired by Prime Minister Syed Yousuf Raza Gilani, it was agreed that the main KESC power generating units that run on gas (single cycle plant) should be provided with maximum gas quantity so that these units can effectively cater to the city load requirements.
“While SSSC woes continue to pile up because of the KESC’s reluctance to settle outstanding payments, the gas utility feels for its customers in Karachi and hardships that they have to face due to constant power outages. The extended load-shedding period, further aggravated by the KESC’s stubbornness by not reverting to usage of furnace oil, is making our domestic, commercial and industrial customers suffer heavily. In doing so, the KESC is making life miserable for itself while leading SSGC to a point of no return,” said the SSGC spokesman.
When contacted to ascertain the version of the privatised power utility on its row with the SSGC, the spokesman for the KESC said that signing the Gas Supply Agreement with the gas utility was in total favour of the KESC as it would ensure a defined quote of gas supply for the purpose of power generation. “It is not entirely the issue of money but also the matter of sustainability of product supply over the eintire period of agreement. There has been so much fluctuation in gas supply during last some months, seriously affecting our power generation, and this has been effectively barring us from signing the GSA when there is no guarantee of consistent supply of allocated quota of gas to the KESC,” said the KESC spokesman. The power utility spokesman said that the KESC has paid Rs 52 billion to the SSGC since September 2008 against its purchases of Rs 56 billion during the same period with more than Rs 7.0 billion paid during the last three months alone. The impression that KESC was not making any payments to SSGC was incorrect, he added.
According to him, the SSGC is supplying approximately 180 MMCFD of gas versus an allocation of 276 MMCFD. Coupled with declining gas supply, the KESC’s working capital is severely strained as dues from the government and related sovereign entities including “strategic customers” and various federal and provincial bodies have accumulated to Rs. 48 billion. In addition, nearly Rs. 30 billion amount is outstanding in receivables from the general public.
”Non-payment of dues has cast a significant impact on KESC’s liquidity. Notwithstanding non-payment of receivables and the fact that KESC is charged interest on its payables while it receives no interest from the government receivables, the KESC has been making payments to NTDC, SSGC, PSO, and other IPPs. Since September 2008, KESC has made payments of Rs. 157 billion to these entities.
“The circular debt is the primary issue hampering liquidity across the oil and gas and power sectors. Various solutions are often discussed to holistically resolve this issue but their implementation is often found lacking. For example, an offset mechanism between KESC’s SSGC payable and KWSB receivable (of over Rs. 11 billion) was agreed at a meeting chaired by the then Finance Minister and the Minister of Water & Power (February 2010) to discuss the circular debt problem. The same mechanism has been applied to the payable to NTDC whereby the tariff differential claim owed by the Ministry of Finance to the KESC is directly paid to NTDC,” said the KESC spokesman.
The NEWS Karachi
Tuesday, October 05, 2010
Karachi
Sui Southern Gas Company (SSGC) said on Monday that it may go bankrupt if the Karachi Electric Supply Company (KESC) refuses to pay its dues.
According to a statement issued by the SSGC, the KESC dues have reached a total of Rs6.3 billion. KESC had committed to pay this amount in monthly instalments.
“In 2009, KESC entered into an accord with the SSGC for payment of outstanding balances amounting to Rs12.23 billion. To date, KESC has failed to honour its own agreement while on the other hand, SSGC, despite being the aggrieved party, continues to fulfil its commitment towards helping the KESC meet its gas requirements.
“Due to stubbornness on the part of the KESC, SSGC today is caught in the vicious cycle of circular debt which is showing no signs of abating. Despite reluctance on the part of the KESC to settle receivables amounting to Rs20.6 billion, the gas utility is meeting all its commitments by supplying gas to Bin Qasim power station and rest of the power plants of the KESC simply because it does not want Karachi, Pakistan’s biggest gas load centre, to suffer because of the KESC’s obstinacy.
“To date, KESC does not have a Gas Supply Agreement (GSA), while SSGC stresses that it wants to expedite the negotiations between the two companies. Unfortunately, the KESC wants to do so on its own terms rather than agreeing on a standard mutually worked out agreement. As per the requirements of Oil and Gas Regulatory
Authority, the end user of gas has to provide a bank guarantee which is also referred to as Gas Security Deposit (GSD). This GSD is cash equivalent amount of three months of gas sales, which in quantitative terms amount to approximate Rs 9 billion, which the KESC is not willing to commit itself to. In general, all the end users provide three months’ billing amount as gas supply deposits. KESC’s failure to sign on the GSA is unfortunate and makes the receivables position highly vulnerable,” said the SSGC spokesman.
He recalled that at the three-day Energy Summit held in Islamabad in April 2010, which was chaired by Prime Minister Syed Yousuf Raza Gilani, it was agreed that the main KESC power generating units that run on gas (single cycle plant) should be provided with maximum gas quantity so that these units can effectively cater to the city load requirements.
“While SSSC woes continue to pile up because of the KESC’s reluctance to settle outstanding payments, the gas utility feels for its customers in Karachi and hardships that they have to face due to constant power outages. The extended load-shedding period, further aggravated by the KESC’s stubbornness by not reverting to usage of furnace oil, is making our domestic, commercial and industrial customers suffer heavily. In doing so, the KESC is making life miserable for itself while leading SSGC to a point of no return,” said the SSGC spokesman.
When contacted to ascertain the version of the privatised power utility on its row with the SSGC, the spokesman for the KESC said that signing the Gas Supply Agreement with the gas utility was in total favour of the KESC as it would ensure a defined quote of gas supply for the purpose of power generation. “It is not entirely the issue of money but also the matter of sustainability of product supply over the eintire period of agreement. There has been so much fluctuation in gas supply during last some months, seriously affecting our power generation, and this has been effectively barring us from signing the GSA when there is no guarantee of consistent supply of allocated quota of gas to the KESC,” said the KESC spokesman. The power utility spokesman said that the KESC has paid Rs 52 billion to the SSGC since September 2008 against its purchases of Rs 56 billion during the same period with more than Rs 7.0 billion paid during the last three months alone. The impression that KESC was not making any payments to SSGC was incorrect, he added.
According to him, the SSGC is supplying approximately 180 MMCFD of gas versus an allocation of 276 MMCFD. Coupled with declining gas supply, the KESC’s working capital is severely strained as dues from the government and related sovereign entities including “strategic customers” and various federal and provincial bodies have accumulated to Rs. 48 billion. In addition, nearly Rs. 30 billion amount is outstanding in receivables from the general public.
”Non-payment of dues has cast a significant impact on KESC’s liquidity. Notwithstanding non-payment of receivables and the fact that KESC is charged interest on its payables while it receives no interest from the government receivables, the KESC has been making payments to NTDC, SSGC, PSO, and other IPPs. Since September 2008, KESC has made payments of Rs. 157 billion to these entities.
“The circular debt is the primary issue hampering liquidity across the oil and gas and power sectors. Various solutions are often discussed to holistically resolve this issue but their implementation is often found lacking. For example, an offset mechanism between KESC’s SSGC payable and KWSB receivable (of over Rs. 11 billion) was agreed at a meeting chaired by the then Finance Minister and the Minister of Water & Power (February 2010) to discuss the circular debt problem. The same mechanism has been applied to the payable to NTDC whereby the tariff differential claim owed by the Ministry of Finance to the KESC is directly paid to NTDC,” said the KESC spokesman.
