Cabinet Panel Rejects Gas Utilities’ Accounting Relief Request

ISLAMABAD: A federal cabinet committee on Thursday refused to grant state-run gas companies relief from international accounting and financial reporting rules, a decision that keeps pressure on Sui Southern Gas Company and Sui Northern Gas Pipelines Limited as Pakistan struggles with a massive gas-sector circular debt.

The matter was taken up by the Cabinet Committee on State-Owned Enterprises, chaired by Finance Minister Muhammad Aurangzeb. The Petroleum Division had sought exemptions for selected energy-sector public companies from IFRS-9 and IFRS-14, arguing that the accounting treatment could worsen the financial position of the utilities.

The request carried major implications because the gas companies are already burdened by circular debt estimated at Rs3.44 trillion. Applying the international standards could require the firms to recognise and provide for liabilities, impaired receivables and other financial exposures, potentially eroding their equity even where day-to-day billing cash flows remain sufficient for operations.

According to the official account of the meeting, the committee did not approve the exemption and instead directed the Petroleum Division to hold further consultations with the Finance Division and the Law and Justice Division before submitting a revised proposal. The finance minister was reported to have taken the view that such relief could not be granted while the State-Owned Enterprises Act 2023 remained in force.

The Finance Ministry’s Central Monitoring Unit, which tracks public enterprises under Pakistan’s reform and oversight framework, opposed the proposed exemption. Its position was that state-owned entities should follow transparent reporting practices, especially as Pakistan remains under close international scrutiny over public-sector losses, circular debt and governance reforms.

The two gas utilities and the Petroleum Division had sought continuation of earlier accounting practices under the older generally accepted accounting principles used for regulated businesses. Officials familiar with the matter said the companies had already benefited from a similar three-year exemption in the past, making the latest request more difficult for the cabinet body to accept without deeper review.

IFRS-9 deals with recognition, measurement and impairment of financial assets and liabilities, while IFRS-14 relates to regulatory deferral accounts. In practical terms, their application can force companies to present a clearer picture of recoverable and unrecoverable dues, an issue that becomes highly sensitive in Pakistan’s energy sector because public entities often owe large amounts to one another.

The committee also reviewed governance matters at other state-owned enterprises. It rejected two proposed board appointments from the Petroleum Division for Pakistan Petroleum Limited and Sandak Metals Limited, saying board composition must remain aligned with good governance standards and the SOE ownership and management framework.

In another decision, the committee approved excluding the Small and Medium Enterprises Development Authority from the list of state-owned enterprises, citing its statutory and non-commercial character. That move separates SMEDA from the reform framework applied to commercial public-sector entities.

For Pakistan’s economy, the decision signals that the government is trying to balance financial stability with transparency in loss-making or debt-heavy public companies. The next step will be a revised proposal from the Petroleum Division, but any future relief is likely to face strict scrutiny because of IMF-linked governance expectations, investor confidence concerns and the need to reduce circular debt in the energy chain.