KARACHI: The government is considering a scheme to reduce the stock of the circular debt by declaring dividends for the shareholders of energy sector companies.

The government owns major stakes in big energy companies and stands to benefit directly if they announce dividends.

According to an official statement on Monday, Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin chaired a meeting on the issue at the Finance Division. The petroleum secretary told the meeting a low pay-out ratio and a mounting circular debt have resulted in a significant drop in the share prices of energy companies on the Pakistan Stock Exchange. Poor cash flows are affecting future growth and long-term sustainability of the listed energy companies, the statement quoted him as saying.

Mr Tarin advised the energy companies to make the “best use of their resources” and directed the Petroleum Division to present a workable plan in the next meeting.

Tarin assures millers sugar industry’s problems will be resolved on a priority basis

In the recent past, Mr Tarin has encouraged energy heavyweights to announce dividends and count the same towards settling the circular debt.

By Mr Tarin’s own estimates, such a move would not only increase energy companies’ valuations on the stock market but also bring down the circular debt by Rs300-400 billion. The stock of unpaid bills within the energy value chain currently hovers around Rs2.5 trillion.

For example, trade debts of Oil and Gas Development Company, one of the last entities in the circular debt chain, include an overdue amount of Rs322.4bn as receivables from oil refineries and gas companies.

As for Pakistan Petroleum Ltd, another tail-end firm in the circular debt chain, trade debts include Rs260.2bn as receivables from state-controlled companies and Rs6.1bn from oil refineries.

The finance adviser had made this suggestion in response to a speech by stockbroker-turned industrialist Arif Habib in a ceremony on Nov 14 in Karachi. In his speech, Mr Habib had noted that the index was trading at (2022) forward price-to-earnings (P/E) multiple of 4.9 versus the historical average of 8.1.

An indicator of how much investors are willing to pay for each rupee in earnings, the prevailing P/E multiple suggests stock values are suppressed, particularly because of cash-flow restraints in index heavyweight energy companies.

Mentioning the benefits of announcing dividends and adjusting them against the outstanding circular debt, Mr Tarin also referred to the global depositary receipts or GDRs, which are instruments to raise capital by listing local companies on foreign stock exchanges. Declaring dividends will improve valuations of energy companies and enable the government to raise funds internationally by issuing GDRs, he had said.

APP adds: Meanwhile, in a meeting with a delegation of Pakistan Sugar Mills Association (PSMA) on Monday, Mr Tarin said the government appreciated the critical role of the sugar industry in the country’s economic progress and would resolve its problems on a priority basis.

He listened to all delegation members keenly and issued orders for the resolution of their problems.

The PSMA delegation apprised the meeting of the issues facing the sugar industry. Mr Tarin reiterated the government’s commitment to address genuine concerns of the industry.

Published in Dawn, November 30th, 2021