By Staff Reporter
ISLAMABAD: The Cabinet Committee on state-owned enterprises has turned down a request by two gas utilities weighed down by circular debt to be exempted from international accounting standards, a move that would have helped them avoid being declared insolvent, according to an official statement.
The committee, chaired by Finance Minister Muhammad Aurangzeb, instead ordered the Petroleum Division to consult further with the finance and law ministries and bring back a revised proposal, the statement said Thursday.
Sui Southern Gas Company and Sui Northern Gas Pipelines, both state-owned, had asked to be excused from applying International Financial Reporting Standards 9 and 14, rules that govern how companies classify financial assets and liabilities and account for expected credit losses. The Petroleum Division backed the request on behalf of the two utilities.
Sources familiar with the matter said the companies had previously been granted a similar three-year exemption.
The finance minister told the committee such a waiver was incompatible with the State-Owned Enterprises Act of 2023, and said the request warranted extended deliberation given firm opposition from the Finance Ministry’s Central Monitoring Unit, the sources said. The unit oversees state enterprises under conditions attached to Pakistan’s loan program with the International Monetary Fund.
The two gas companies are carrying a combined Rs3.44 trillion in circular debt. Applying the accounting standards in full would have forced them to set aside provisions for liabilities that in many cases cannot be recovered, while a portion could be recouped from other state enterprises. That would have eroded their equity even though billing cash flows remain sufficient to cover day-to-day operations, according to the statement.
The utilities, together with the Petroleum Division, had argued for retaining older accounting practices under Generally Accepted Accounting Principles for their regulated operations rather than shifting to the newer international framework.
IFRS-9 requires companies to record a financial asset or liability once they become party to a contract, and to initially measure it at fair value adjusted for related transaction costs, according to the International Accounting Standards Board. IFRS-14 permits regulated entities to defer certain items in their financial reporting.
The Central Monitoring Unit has argued both standards should apply in full to meet transparency requirements under the SOE Act, including footnotes detailing how receivables will be resolved under a circular debt management plan now being negotiated with the IMF, according to the statement.
Separately, the committee rejected board nominations put forward by the Petroleum Division for one director each at Pakistan Petroleum Limited and Sandak Metals Limited, citing concerns over governance standards. It approved the remaining nominees for both boards and directed that a single Petroleum Division representative be nominated to each, with formal approval to follow from the federal cabinet.
The committee said board composition at state enterprises must adhere to governance principles under the SOE ownership and management law and policy, including a cap of one ex-officio director from a sponsoring ministry on each board.
Copyright © 2021 Independent Pakistan | All rights reserved
