Ahmed Mukhtar Naqshbandi
ISLAMABAD: The federal government considered settling the outstanding gas sector circular debt and discussed the plan with the International Monetary Fund (IMF).
Sources said that the amount of settled circular debt is expected to come back to the government via dividends, either fully funded or at a 13 percent cost.
The government will inject 543 billion rupees into Sui companies (SNGP and SSGC), which will then be re-routed to OGDC and PPL for dividend declaration of PKR 75.80/share and PKR 33.08/share, respectively. The fiscal cost of this scenario for the government is estimated at PKR 71.4bn.
In another scenario, the cash injection by the government to Sui companies will remain the same (PKR 543bn), resulting in dividend declaration by OGDC and PPL, and the fiscal cost to the government will be nil.
This is owed to a potential minority shareholder dividend of PKR 58 billion for OGDC and PKR 30bn for PPL, which will take the total payout by OGDC to PKR 89.17/share and PKR 44.10/share by PPL.
Taking a cue from that, it is estimated that OGDC’s minority dividend is expected at PKR 57.5 billion, which will be funded via encashment of PKR 23 billion via PIBs and the remaining PKR 35 billion through cash.
While for PPL, the minority dividend is expected to be completely funded through the balance sheet (PKR 30 billion).
It is pertinent to mention here that neither cash nor a non-cash settlement would affect the minority shareholders’ dividends. In the former case, the cash will be raised through the issuance of T-bills and given to Sui companies as a grant. Whereas in the second scenario, the book entries will be made via a commitment paper whereby all the accounts will be netted off, with minority shareholders receiving their dividends.
Second phase of debt clearance expected
Moreover, it is believed that this is the first phase of circular debt clearance, while it is expected that in the second phase of clearance, the remaining receivables of OGDC and PPL will also be settled by means of the same mechanism.
It is also believed that a hike in gas tariff will significantly support the cash earnings of the companies alongside this gas circular debt clearance, which was a key reason behind depressed valuations at the market. Therefore, a materialization of these two events can re-rate the E&P sector and help aid the index.
