Cabinet body rejects accounting exemptions for Sui gas companies facing insolvency risk

The Cabinet Committee on State-Owned Enterprises on Thursday rejected a request to exempt Sui Northern Gas Pipelines Limited and Sui Southern Gas Limited from international accounting and financial reporting standards amid concerns that their Rs3.442 trillion circular debt could push them towards insolvency, Dawn reported. 

The committee, chaired by Finance Minister Muhammad Aurangzeb, directed the Petroleum Division to hold further consultations with the Finance Division and the Law and Justice Division before submitting a revised proposal.

The Petroleum Division had sought an exemption for the two state-owned gas utilities from International Financial Reporting Standards 9 and 14. The companies had already benefited from a similar three-year exemption and wanted to continue reporting under the previous Generally Accepted Accounting Principles used for their regulated business model.

According to officials, applying the international standards would require the companies to recognise provisions against liabilities and receivables, including amounts linked to other state-owned entities. This could substantially reduce their equity despite sufficient billing cash flows to maintain operations.

International Financial Reporting Standard 9 requires companies to classify financial assets and liabilities based on their business models and cash-flow characteristics, while recognising expected credit losses and impairments. International Financial Reporting Standard 14 deals with regulatory deferral accounts for entities operating in regulated sectors.

The Central Monitoring Unit of the Ministry of Finance opposed the exemption, arguing that the standards should be applied to ensure transparency under the State-Owned Enterprises Act, 2023. It also sought disclosures explaining how circular debt receivables would be settled under the management plan being discussed with the International Monetary Fund.

The finance minister observed that an exemption could not be granted without detailed consideration, particularly after the introduction of the State-Owned Enterprises Act, 2023.