Cabinet Denies SNGP, SSGC IFRS Exemption Over Circular Debt Accounting

What the cabinet committee decided on IFRS exemption

The Cabinet Committee on State-Owned Enterprises, chaired by Finance Minister Muhammad Aurangzeb, rejected a request from Sui Southern and Sui Northern to be exempted from applying international accounting standards, specifically IFRS-9 and IFRS-14, that the two circular debt hit gas utilities wanted to avoid because compliance risks showing them as insolvent on paper. The Petroleum Division had asked for the carve out on behalf of these energy sector state owned enterprises, noting that a similar three year exemption had been granted before. The finance minister said such an exemption cannot be allowed while the SOEs Act 2023 remains in force. The committee did leave the door open a crack, instructing the Petroleum Division to work with the Finance Division and the Law and Justice Division on a revised proposal.

Why it matters for gas utility stocks

IFRS-9 requires companies to book expected credit losses on receivables rather than waiting for an actual default, and years of circular debt have left both companies sitting on enormous, slow moving receivables from the power sector and other consumers. Without an exemption, applying the standard properly means recognising large impairment charges against those receivables, which hits reported equity and could trigger negative equity or going concern flags in the audited accounts. That is an accounting outcome, not a change in the underlying cash the companies actually collect, but for a listed company reported equity and auditor opinions affect borrowing costs, dividend capacity and how the market prices the stock.

Which stocks, and why

Sui Northern Gas Pipelines and Sui Southern Gas Company are the two companies named directly in the decision. Both are regulated gas utilities whose returns are set by OGRA tariff determinations, and both carry large circular debt receivables built up over years of gas sector arrears. A denial of the accounting exemption means their financial statements are more likely to show the scale of that receivable problem in a way investors have not had to price in as starkly before, since the earlier three year exemption had kept the issue off the balance sheet in this form.

The committee's decision is not final. It asked for a revised proposal, which leaves room for a narrower exemption or a phased transition. That qualifier keeps this from being a clean, done deal negative and argues for a measured read rather than treating it as a resolved structural blow.

What to watch

The revised proposal from the Petroleum Division, Finance Division and Law and Justice Division is the next concrete marker, since it will show whether some form of relief still emerges. Also worth watching are SNGP and SSGC's upcoming annual results and auditor commentary, which will show how large the IFRS-9 provisioning actually turns out to be if no exemption materialises, and any government statements on a broader circular debt settlement that would shrink the receivables base these standards are being applied to.