The Economic Coordination Committee (ECC) of the Cabinet has approved an extension for the sovereign guarantee issued to Sui Northern Gas Pipelines Limited (SNGPL), providing continued support for a Rs 50 billion loan amid ongoing liquidity challenges, Business Recorder reported.
The decision, made during a meeting on Friday, also calls for the Petroleum Division to present SNGPL’s cash flow projections to determine its capacity to repay the loan when it matures in 2026.
The ECC’s decision follows a previous approval granted in March 2023, which allowed the Finance Division to provide a sovereign guarantee for SNGPL’s commercial borrowing, totaling Rs 50 billion. The loan was issued to cover payments for re-gasified liquefied natural gas (RLNG) supplied by Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL). As per the original terms, the loan facilities from Allied Bank Limited (ABL), Faysal Bank Limited (FBL), and National Bank of Pakistan (NBP) were to expire on April 12, 2024. However, due to ongoing financial difficulties, including circular debt and high financing costs, SNGPL sought an extension for one year.
The Finance Division has suggested that the Petroleum Division submit a summary to the ECC for formal approval, as the extension would constitute a new financing facility under current guidelines.
The government also requested that SNGPL present a business plan detailing how it intends to service and retire the government-backed loan within the 2024-25 fiscal year.
SNGPL has acknowledged its ability to repay the loan has been compromised due to gas circular debt and related issues, but the company expects improvements in cash flow from recent consumer price revisions. As part of its solution, SNGPL proposed converting the existing short-term financing into a long-term loan with a 5-10 year repayment period.
During the ECC meeting, members expressed concerns about the reliance on short-term loans for long-term obligations, particularly given the current lack of sufficient cash flow to meet liabilities. However, the Petroleum Division assured the forum that cash flows from energy management companies have improved, and that SNGPL will be able to meet its financial obligations within the coming year.
In light of these discussions, the ECC approved the extension of the sovereign guarantee until June 2026, while stipulating that the facility would be treated as new financing.
The Petroleum Division was also directed to provide detailed cash flow projections at the next ECC meeting to assess SNGPL’s capacity to repay the loan upon its maturity.
