Cabinet Committee rejects gas utilities' plea for accounting exemption

ISLAMABAD: The Cabinet Committee on State-Owned Enterprises (SOEs) on Thursday rejected a request by cash-strapped gas utilities Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) to exempt them from international accounting standards, a move aimed at preventing the companies from being declared technically insolvent.

The committee, chaired by Finance Minister Muhammad Aurangzeb, instead directed the Petroleum, Finance and Law ministries to hold further consultations and submit a revised proposal for consideration, according to an official statement.

The Petroleum Division had sought exemption for specified energy-sector SOEs from the application of International Financial Reporting Standards (IFRS-9 and IFRS-14). However, the committee maintained that any such relaxation would be inconsistent with the State-Owned Enterprises Act, 2023.

Sources said the two gas utilities had already benefited from a similar exemption over the past three years. The Finance Ministry's Central Monitoring Unit (CMU), which oversees SOEs under the International Monetary Fund (IMF) reform framework, strongly opposed extending the concession.

Burdened with gas-sector circular debt of around Rs3.44 trillion, SNGPL and SSGC argued that adopting IFRS-9 and IFRS-14 would require them to recognise large unrecoverable liabilities, significantly eroding their equity despite maintaining sufficient cash flows to sustain operations.

The Petroleum Division had proposed allowing the companies to continue preparing their financial statements under the previous Generally Accepted Accounting Principles (GAAP), citing the regulated nature of their business.

The CMU, however, insisted that the international standards were essential to ensure transparency and compliance with the SOE Act, while any receivables linked to the circular debt resolution plan could be adequately disclosed through financial statement notes.

Separately, the committee rejected the nomination of two Petroleum Division officials to the boards of Pakistan Petroleum Limited (PPL) and Saindak Metals Limited (SML), terming the move inconsistent with good governance principles. It approved the remaining board appointments and directed that only one ex-officio representative from the sponsoring ministry be nominated to each board in line with the SOE Act and governance policy.

The committee also approved a proposal to remove the Small and Medium Enterprises Development Authority (SMEDA) from the list of state-owned enterprises, recognising its statutory and non-commercial status.