SSGC concerns on PSM payment default

Karachi: Pakistan Steel Mills (PSM) has been constantly defaulting on its payments to SSGC. PSM’s failure to settle its dues has made it difficult for the gas utility to finance its programs of strategic nature, which includes pipeline augmentation projects across its franchise areas, says SSGC in a press statement.

Commenting about the continuously rising dues, SSGC’s spokesperson elaborated that since last three to four years, PSM’s outstanding receivables have continued to rise. In July 2012, PSM’s overdue balance with SSGC stood at Rs. 8.3 billion. By the same time period in 2013, the balance had shot up to Rs. 15 billion. However, since then receivables have continued to mount uncontrollably, he added. By July 2014, the balance had risen to Rs. 24 billion. Today, PSM’s receivables stand at a staggering Rs. 35 billion.

This is a major concern for SSGC since the rising amount of outstanding receivables has made it increasingly difficult for the Company to make payments to local and foreign E&P companies for purchase of gas as well as to meet other commitments. Since April 2015, PSM has not paid any amount to SSGC and if this grave situation persists, the gas utility may be forced to default on payments.

SSGC has given PSM ample opportunity and time to settle its dues through a steady supply of gas but the latter has continued to show a total lack of seriousness in this regard. PSM is not even offering a palatable payment plan for the settlement of large overdue balances, in-spite of providing them many opportunities for doing the same.

The spokesperson further disclosed that since last few years, SSGC has continuously reminded PSM of its mounting dues, both through verbal and written notices, but has always stopped short of suspending gas supply to it. Every time a notice was served to PSM, it made a commitment to settle its dues, yet PSM repeatedly faltered on its commitment. While recovering dues with the customer, the Company follows a policy of gentle persuasion and when it notices fail to have any effect on the consumer and debts keep on piling up, the suspension of gas supply becomes last resort. Is PSM heading towards that scenario, the spokes person questioned?

According to the media release, the PSM has itself taken SSGC to a point where it had no option but to cut gas supply to it. In July 2015, SSGC served a notice to PSM, asking it to submit an acceptable payment plan along with a down payment and a firm assurance that it will settle the remaining amount. PSM remained unmoved. This August, SSGC served yet another notice to PSM instructing it to take necessary steps to arrange for the payment of outstanding dues on or before, August 15, 2015. The notice clearly said that in the event of failure in making the requisite payment, SSGC will be compelled to not only discontinue deliveries of gas to the Plant but also terminate the GSA without any further notice at PSM’s sole risk as to consequences thereof.

The spokes person of SSGC commenting on the behavior of PSM management, further said that he sad part is that instead of making any firm commitment towards settling its dues, PSM has unfairly blamed the Ministry of Petroleum and SSGC’s Chairman for cutting gas supplies, asserting that their action has hampered its ability to run its plants productively. It was in fact, the Company’s Board of Directors that gave directives to the management in December 2014 to recover its outstanding payment amounts from PSM as soon as possible. The Board has also categorically instructed the management that in case of non-recovery, it can take last resort measures such as disconnection of supply.

PSM also alleges that due to gas cuts, it is unable to pay salaries to its staff. This argument seems illogical since the payment of salaries is being made through the Government’s bail-out package.

PSM has tried to project itself as an aggrieved party by blaming SSGC for its production woes. Right now PSM has Rs. 9 billion worth of inventory. The fact of the matter is that it has enough avenues to generate funds by selling its inventory. However, due to a huge dump of imported products, its own products have been found to be less attractive.

If PSM continues to default on its payments, its action will have a major impact on the financial health of SSGC, forcing the derailment of its capital expenditure projects which are obviously of strategic nature. PSM will have to rethink its policy towards SSGC which has accommodated PSM long enough. PSM may be drowning but why is it that it wants other organizations such as SSGC to drown with it?

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