OGDCL receives first interest payment under circular debt resolution plan

The Oil and Gas Development Company Limited (OGDCL) has received an interest payment of PKR 7.725 billion from Power Holding (Private) Limited (PHL), marking the first installment under Pakistan’s government-approved circular debt settlement plan.

In a notice to the Pakistan Stock Exchange on Monday, OGDCL confirmed the payment was made in accordance with the circular debt resolution mechanism unveiled by the government earlier this year. The total interest amount of PKR 92 billion is scheduled to be paid in 12 equal monthly installments, beginning July.

“This receipt reflects progress under the Government of Pakistan’s initiative to address circular debt in the energy sector,” OGDCL said in a regulatory filing, referring to its earlier disclosure on June 27, 2024.

The interest payments are part of a broader financial restructuring effort by the Ministry of Energy to reduce the mounting circular debt, a chronic problem that has hampered Pakistan’s power and petroleum sectors for more than a decade.

The debt stems from inefficiencies, poor bill recovery, and subsidies not fully funded by the government, resulting in a backlog of unpaid dues among entities in the energy supply chain.

The government has been trying to resolve the outstanding issue of PKR 1.275 trillion pending for almost three months.

OGDCL, the country’s largest oil and gas exploration and production company, is among several state-owned firms impacted by the ballooning debt owed by public sector power purchasers.

Power Holding (Private) Limited, a special-purpose vehicle under the Ministry of Finance, has been tasked with managing liabilities to energy producers and streamlining payments under the new settlement framework.

Analysts say the initiation of scheduled payments is a key milestone in restoring confidence in the energy sector and addressing liquidity constraints for upstream companies like OGDCL. Successful implementation of the full PKR 92 billion repayment plan over the next year could signal greater fiscal discipline and improved governance in Pakistan’s energy ecosystem.

However, challenges remain. The country’s circular debt stock remains above PKR 5.3 trillion, and further structural reforms, including tariff rationalization, enhanced revenue recovery, and reduction in line losses, are considered essential to prevent the debt from re-accumulating.

The government has committed to energy sector reforms under its ongoing agreement with the International Monetary Fund, making timely settlement of obligations and reduction of circular debt key performance indicators.

The OGDCL payment is expected to be followed by similar disbursements to other energy companies in the months ahead, as Islamabad moves to stabilize the sector and encourage investment.