Sui Northern Gas Pipelines Limited (SNGP) announced its 2QFY21 and 3QFY21 financial result today, posting a profit after tax (PAT) of PKR 2,736mn (EPS: PKR 4.31) and PKR 3,022mn (EPS: PKR 4.76), respectively. Earnings in 9MFY21 arrived at PKR 8,939mn (EPS: PKR 14.09) against PKR 5,779mn (EPS: PKR 9.11) in SPLY, depicting a 55% YoY jump. Alongside the result, the company announced an interim cash dividend of PKR 2.00/share in the half year.

Result Highlights

·        During 9MFY21, sales underwent a decline of 12% YoY despite a 19% YoY jump in RLNG offtake. Augmented RLNG sales were offset by lower natural gas dispatches (depleting reserves) as well as a 27% dip in imported price in lieu of dwindling International Brent Oil price (down by 15% YoY) to USD 49.48/bbl vs. USD 58.40/bbl in SPLY amid drastic erosion in aggregate demand post outbreak of COVID-19.

·        Albeit, operating profit remained slightly down compared to last year, at PKR 41.6bn in 9MFY21 vs. PKR 43.9bn SPLY regardless of a significant cut in UFG, as the company recognized other allowable expenses (including operating cost other than HR) last year, which are determined in the last quarter.

·        Meanwhile finance costs displayed a cut of 19% YoY in 9MFY21 to PKR 28.8bn primarily owed to a sharp 625bps cut in the benchmark policy rate at the beginning of the year by the SBP to support businesses post initial outbreak of coronavirus. This primarily supported the noteworthy jump in profitability during the period under review.

·        The company booked effective taxation at 30% during 9MFY21 (9MFY20: 29%).

 Other highlights

Two auditor notes have been highlighted: i) Note 14.1 which explains that settlement of the circular debt including tariff adjustment relies on resolution of outstanding balances owed by the Government of Pakistan, and increase in gas prices / subsidy by the government to the company, and ii) Note 28.3 which draws attention to an ongoing investigation pertaining to some transactions carried out by a director, impact of which (if any) will be accounted for once the investigation is completed.

 OGRA’s update on determination of UFG on RLNG

The Oil and Gas Regulatory Authority (OGRA) released a note on its updated stance on RLNG UFG on October 1st, 2021 whereby it believes that i) both companies do not have a separate mechanism to measure UFG losses for natural gas and RLNG, ii) gas utilities arbitrarily allocate natural gas and RLNG to their consumers, and iii) both SNGP and SSGC do not maintain any mechansims to effectively evaluate ring-fencing on their respective distribution networks. Therefore OGRA has initiated a process through international auditors, to determine actual UFG losses for indigenous gas, as well as imported RLNG. Untill proper ringfencing is done, OGRA stated that it will only allow UFG upto the benchmark for natural gas (6.3% for distribution). However, the Lahore High Court has already passed a decision in favour of the domestic gas utilites regarding the same issue (19th Jul’21), allowing complete RLNG costs to be passed on under the ringfencing mechanism. Therefore, this too may be suspended by the Court.

Courtesy- AHL Research