SNGP – A review of gas utility in Pakistan

Sui Norther Gas Pipelines Limited (SNGPL) conducted a conference call today to discuss its FY19 financial result. The meeting was hosted by Mr. Amer Tufail, Managing Director SNGP and Mr. Faisal Iqbal, Chief Financial Officer.

Salient features

· The current consumer base is around 7mn (Transmission in 3 regions and distribution in 16 regions), which has grown remarkably over the years. Pertinently, the government plans to add a further 1.8mn consumers.

· With regard to this, 26,000KMs are under pipeline at an approved capitalization in hand of PKR 70bn by the government.

· As per the latest energy mix, 47% of total energy needs are being met by RLNG / Natural gas. Of this 40% is consumed by retail consumers and 19% by industry.

· Prior to 2015, due to continuous natural gas depletion, domestic gas power plants were underutilized. Import of RLNG commenced in 2015 with a 3% share in the total energy mix of the country. This has gone up to 50% in 2020 and 55% in 2021.

· The management updated that despite push for reduction in WACC from 17.43% by various quarters, OGRA remains steadfast on the formula calculation so it is intact thus far. The government cannot reduce the rate and not revalue assets of the company. Therefore, cannot look at these in isolation.

· Effective ROA on indigenous gas assets is 10.95% but only 1.52% on RLNG assets.

· Pertinently, there are 3 major gas projects under pipeline: TAPI (additional 300kms will be required in system augmentation), Iran-Pakistan (270kms of different diameter pipelines are planned) and North South pipeline / RLNG III (final stages of deliberation).

· The management further stated that the government has not yet made it clear whether or not SNGP will have a role in the construction of North South Pipeline nor when work on the project will commence. Albeit, the company expects a good quantum of work via this project.

· The company is also tapping into EPC ventures and compression facilities to aid revenue streams.

· UFG disallowance of PKR 10.6bn (11.86%) booked in FY19 is under dispute with OGRA; company believes it should be lower.

· UFG in FY19 would have been 10.9% as opposed to 11.9% however, there was a disagreement with OGRA on whether UFG should be charged on actual gas pressure to consumers or standards set by OGRA. Since appeal of the company in Lahore High Court was dismissed, a higher UFG was recognized by the company. Pertinently, the matter continues to be under litigation.

· On the Late Payment Surcharge (LPS) front, OGRA had previously clarified that LPS will be allowed when paid, and its recognition remains a timing issue only. To recall, the company recognized LPS of PKR 18bn in FY19 and the management believes it will continue to recognize it going forward.

· SNGP has already billed GIDC to industries after the latest Supreme Court ruling. The billing date varies for large and small consumers (1st to 7th of every month) while the payment date is around 17th, which is when the company will observe the collection of GIDC.

· Finally, the management informed that the gas diversion mechanism has been approved by ECC in principle but yet to be implemented as final approvals by the government are awaited.

Courtesy – AHL Research

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