State-owned oil, gas companies need to revamp business plans: Finance Division

ISLAMABAD - The Finance Division has said that key weaknesses in all five state-owned oil and gas companies lie in financial mismanagement, aging infrastructure, lack of diversification, poor risk management, and insufficient technological innovation and recommended that to remain competitive and sustainable, these companies need to.

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ISLAMABAD - The Finance Division has said that key weaknesses in all five state-owned oil and gas companies lie in financial mismanagement, aging infrastructure, lack of diversification, poor risk management, and insufficient technological innovation and recommended that to remain competitive and sustainable, these companies need to revamp their business plans to address these structural weaknesses. One of the major weaknesses across the business plans of Pakistan State Oil (PSO), Pakistan Petroleum Limited (PPL), Oil and Gas Development Company (OGDC), Sui Northern Gas Pipelines Limited (SNGPL), and Sui Southern Gas Company Limited (SSGC) is ineffective financial management, said Bi-Annual report on Federal State Owned Enterprises FY 2024 released by Finance Division. In its analysis on oil & gas sector business plan progress against targets as per SOE ACT 2023, the report said that the prevalence of circular debt, particularly in the energy sector, creates significant cash flow constraints.

Delays in payments from other SOEs and major customers leave these companies with high receivables, affecting liquidity. PSO, for instance, has been trapped in this circular debt cycle, which hampers its ability to meet working capital needs and invest in growth projects. Similarly, SNGPL and SSGC struggle with collection issues, resulting in weakened financial positions and an over-reliance on government support.



All five companies face significant challenges due to outdated and inefficient infrastructure. OGDC and PPL, two of the largest upstream oil and gas companies, continue to operate on aging extraction and production infrastructure, leading to lower productivity and higher operational costs. SNGPL and SSGPL, responsible for gas transmission and distribution, experience high Unaccounted for Gas (UFG) losses, which are largely due to obsolete pipelines, leakages, and poor metering systems.

Despite awareness of the issue, business plans have been slow to allocate adequate resources for upgrading critical infrastructure, which in turn leads to lost revenues and operational inefficiencies. PSO, PPL, and OGDC have historically focused on fossil fuels, with limited progress in diversifying their energy portfolios. While global trends are shifting towards renewable and cleaner energy alternatives, these companies remain heavily reliant on oil and gas, leaving them vulnerable to market volatility and environmental regulations.

PSO, for instance, still focuses primarily on the downstream oil sector, with insufficient investment in renewable energy initiatives. This lack of diversification in their business plans makes them susceptible to long-term risks associated with declining global demand for fossil fuels, volatile commodity prices, and potential government carbon taxes or environmental penalties. Another common weakness is the insufficient implementation of hedging and risk management strategies across the companies.

Given the volatility of oil and gas prices, PPL, OGDC, and PSO face exposure to price swings that affect their profitability. Their business plans do not adequately prioritize financial instruments such as futures, swaps, or options to mitigate these risks. In addition, the gas distribution companies (SNGPL and SSGC) lack robust risk management strategies to protect against fluctuating gas supply costs or unexpected disruptions in infrastructure.

Without proactive financial and operational risk management, these companies are left vulnerable to external market and supply chain shocks. OGDC and PPL have yet to fully integrate advanced exploration and extraction technologies such as artificial intelligence (AI) or data analytics into their operations, which could improve efficiency and reduce costs. Likewise, SNGPL and SSGC have been slow to adopt smart metering systems or real-time monitoring technologies to address UFG losses.

PSO also lags behind in digital transformation initiatives, which limits its ability to optimize logistics, supply chain management, and customer engagement. The limited focus on technological advancement in their business plans restricts the ability of these companies to enhance operational efficiency and remain competitive in a rapidly evolving energy landscape. The report recommended enhancing financial management and addressing circular debt issues asking to implement debt restructuring plans in coordination with the government and other SOEs to reduce the burden of circular debt.

There is a need to strengthen the collection processes by implementing stricter credit policies, automated invoicing systems, and closer monitoring of outstanding payments. There is also need to develop short-term and long-term cash flow management strategies to ensure liquidity. PSO, SNGPL, and SSGC should also explore alternative funding sources like revolving credit facilities and supply chain financing.

Similarly, the report recommended to invest in infrastructure modernization, upgrading pipelines and extraction technology, allocate significant resources towards upgrading outdated pipelines and production infrastructure to reduce UFG losses and improve operational efficiency. SNGPL and SSGC should invest in advanced metering infrastructure and real-time leak detection systems to minimize gas losses. Both upstream and downstream companies should leverage digital platforms to enhance logistics, production, and distribution efficiencies.

The SOEs should diversify energy investments, expand into renewable energy. PSO, PPL, and OGDC should invest in renewable energy sources such as solar, wind, and biofuels to diversify their portfolios and align with global energy transitions. They should enter into partnerships or joint ventures with renewable energy companies to acquire technical expertise and accelerate the adoption of green technologies.

They should introduce carbon reduction goals and explore opportunities in carbon credits and green financing to mitigate the impact of future regulatory penalties related to carbon emissions. PSO, PPL, and OGDC should implement robust hedging strategies using financial instruments like futures, swaps, and options to mitigate exposure to volatile oil and gas prices. There is also need to develop comprehensive risk management frameworks that include contingency plans for supply chain disruptions and fluctuating gas prices.

SNGPL and SSGPL should focus on hedging strategies for infrastructure risks and gas supply variability. Across PSO, PPL, OGDC, SNGPL, and SSGC, the key weaknesses lie in financial mismanagement, aging infrastructure, and lack of diversification, poor risk management, and insufficient technological innovation. To remain competitive and sustainable, these companies need to revamp their business plans to address these structural weaknesses.

Strategic improvements in these areas will not only safeguard profitability but also position these companies to capitalize on future opportunities in the global energy market..