Cabinet Blocks IFRS Relief for Sui Gas Utilities Sitting on Rs 3.44 Trillion Debt

Pakistan's Cabinet Committee on state-owned enterprises (SOEs) rejected on Thursday a request by Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) to be exempted from two key international accounting standards — a decision that keeps the full weight of the gas sector's Rs. 3.44 trillion circular debt visible on both utilities' balance sheets and prevents either from obscuring its insolvency risk.

What SSGC and SNGPL Requested

The Petroleum Division had formally sought exemptions from IFRS-9 (International Financial Reporting Standard 9), which requires companies to classify financial assets and book provisions for expected credit losses, and IFRS-14, which governs how regulated entities record deferral accounts. Together, these standards compel both utilities to acknowledge that large portions of their receivables — money owed primarily by other government entities and SOEs — may never be fully recovered.

Without an exemption, SSGC and SNGPL would be forced to provision against those potentially unrecoverable amounts, eroding reported equity even though day-to-day billing cash flows remain sufficient to fund operations. Both companies, backed by the Petroleum Division, argued that the older Generally Accepted Accounting Principles (GAAP) are more appropriate for regulated gas utilities operating under government-set tariffs. Informed sources confirmed a similar three-year exemption had already been granted to these same entities previously, making the current request effectively a renewal of a concession that allowed more flattering financial reporting.

Why the Cabinet Said No — For Now

Finance Minister Muhammad Aurangzeb, who chaired the committee, stated that an exemption could not stand while the SOEs Act 2023 remained in force — legislation that mandates internationally aligned financial reporting for all public enterprises. Strong opposition also came from the Finance Ministry's Central Monitoring Unit (CMU), which monitors all SOEs under conditions agreed with the International Monetary Fund (IMF).

The committee stopped short of a permanent rejection: it directed the Petroleum Division to hold further deliberations with the Finance Division and the Law and Justice Division before submitting a revised proposal. Any renewed request will, however, face substantially higher legal and financial scrutiny.

The IMF Dimension and What Is at Stake

Pakistan's active IMF programme makes transparent, internationally consistent SOE financial reporting a hard conditionality. Allowing SSGC and SNGPL to revert to pre-IFRS accounting would have risked a direct conflict with that requirement at a time when Pakistan has only recently stabilised its external accounts.

The numbers explain why both utilities pushed hard for relief. Sitting on a gas-sector circular debt of Rs. 3.44 trillion, full IFRS-9 compliance would require provisioning against receivables from other SOEs that are unlikely to be repaid in full. IFRS-14 would further tighten how deferral accounts are recognised. The combined effect could dramatically erode reported equity — potentially making both utilities appear technically insolvent on audited balance sheets, even as they continue collecting bills and pumping gas through their networks.