Govt Weighs IFRS Exemption for Energy SOEs to Dodge Rs500bn Hit: OGDC, PPL, PSO, SNGP, SSGC Watch

What the IFRS exemption proposal changed

Pakistan's government is weighing an exemption for state owned energy companies from applying international accounting rules, specifically IFRS 9, that would otherwise force these firms to book large provisions against money they are owed but have not been paid. The unpaid amounts sit inside the country's long running energy circular debt, where cash keeps getting stuck between power distributors, gas utilities, and the state owned oil and gas producers that supply them. If these companies had to apply the standard rules in full, officials estimate they would need to set aside roughly Rs400 billion to Rs500 billion in credit loss provisions, a paper hit that would shrink reported equity and could weigh on how the market values these stocks even though no actual cash would change hands from the accounting entry itself.

Why it matters for oil, gas and E&P stocks

The companies most exposed to this are the ones sitting on the largest pile of unpaid receivables from the power sector: the gas utilities that supply fuel to power plants and the exploration companies that sell gas and oil into the system. For these firms, circular debt is not a new problem, it shows up every year in their cash flow statements as slow paying customers. What is new here is the accounting treatment. Under strict IFRS 9 rules, a company has to estimate how much of what it is owed it may never collect and write that estimate straight into its profit and loss account, even while it keeps chasing the government for actual payment. An exemption means these companies can keep carrying those receivables at closer to full value on their books rather than taking an upfront hit to reported profit and equity.

Which stocks, and why

Oil and Gas Development Company and Pakistan Petroleum are majority state owned exploration companies that sell a large share of their gas output to power plants and gas utilities that are themselves behind on payments, so both carry sizeable circular debt receivables on their balance sheets. Pakistan State Oil is often described as the epicentre of the circular debt chain because it supplies furnace oil and other fuel to power generators that pay it late or partially. Sui Northern Gas Pipelines and Sui Southern Gas Company are the two regulated gas utilities that feed both power plants and industry, and both have flagged rising overdue receivables in recent results. For all five, an IFRS exemption would not fix the underlying cash shortfall, but it would stop that shortfall from showing up as a sudden, large writedown in their financial statements, which is why the relief is being read as supportive for their reported earnings and equity even though it does not solve the cash problem that keeps money stuck in the system.

What to watch

This is still a proposal under consideration rather than a final decision, and Pakistan's own finance ministry monitoring unit has already pushed back, arguing that an exemption would hide real financial risk rather than fix it. Watch for whether the exemption is formally approved by the SECP or finance ministry, whether it is granted for a fixed period as past IFRS relief measures have been, and whether the IMF, which has been pressing for genuine circular debt resolution rather than accounting workarounds, raises objections during ongoing programme reviews. If the exemption lapses or is denied, these five companies would likely have to recognise the provisioning hit in a future reporting period instead.