SSGC PLEADS FOR TARIFF INCREASE
Nov 02 - 08, 2009
Weakening of rupee against dollar is increasing the natural gas prices as the government of Pakistan under the agreement buys natural gas in dollars from international gas exploration companies operating in the country.
This is one of the factors, which pushed the SSGC to request OGRA to increase gas prices. However as far as the comparison of cost of transmission and distribution with other countries is concerned, the demand does not stand a valid argument as natural gas is an indigenous commodity in Pakistan while most of other countries import gas. People of this country should not be charged heavily for consuming home produced commodity because of its linkage with international prices.
The current request for any increase in gas prices is mainly because the gas received by SSGC from gas producing companies is priced under a gas pricing formula, which is an arrangement between the government of Pakistan and the gas producing companies. Since these prices are mainly linked with international oil prices and are payable in US$, any increase in international prices and depreciation of the rupee result in increase in the cost of gas which has to be passed on to the end users.
The recent request of SSGC as reported in the press mainly relates to the increase resulting from the increase in the cost of gas to be charged by these gas-producing companies.
As directors representing minority shareholders, they consider it their national duty to provide transparent information for the benefit of consumers and all other stakeholders. It would be pertinent to note that SSGC is governed under a pricing formula which guarantees it return of 17% per annum on net operating fixed assets at written down value before financial charges and tax.
In terms of this formula, SSGC is entitled to gross revenue of approximately Rs. 5 billion per year. Based on this, the current gross return paid to SSGC on the gas supplied from its transmission and distribution system comes to about Rs. 15/mmbtu, which after adjustment of financial charges and taxes is less than Rs. 5/mmbtu, amongst the lowest transmission and distribution return paid to any gas transmission and distribution company in the world having a large pipeline network of more than 30,000 kms.
In order to further illustrate this point, it is clarified that in terms of the proposal of Interstate Gas Company Limited (ISGCL) for the supply of Pak-Iran gas, the cost of transmission is projected to be over US$ 1/mmbtu or Rs. 85/mmbtu, which is almost 15 times more than the current net cost of SSGC.
Therefore, if and when the Pak-Iran gas pipeline is implemented, it would be beneficial for the country if the gas transmission is done through SSGC and SNGPL to ensure cost savings. The above comparison clearly indicates the cost effectiveness of SSGC.
SSGC, besides being a cost effective organization, has been trying to promote the socio economic objectives of the government of Pakistan. In this regards, it has been providing connections in the remote areas of Sindh and Balochistan on which the current level of Unaccounted for Gas (UFG) ranges from 20% - 50% or a loss of about 10 billions cubic feet gas per year which translates into a loss in the shape of UFG of about Rs. 2.5 billion per year.
After adjusting for this loss, the net return to SSGC under the pricing formula becomes almost negative. It would be important to note that under Section 13.1.2 of the license issued to it by OGRA, SSGC is required not to give any technically and economically unviable connection. This section clearly implies that any UFG loss / disallowance suffered by SSGC because of unviable connections in the remote areas of Sindh and Balochistan should be borne by the government of Pakistan or no penalty should be imposed on the UFG in these areas.
SSGC for its future financial viability may be left with no choice but to stop the supply of gas to such areas which are not viable unless OGRA/government provides adequate compensation to it.
The government of Pakistan majorly owns SSGC. It is important to note that the current market value of SSGC's fixed assets is over Rs. 100 billion (as against written down value of about Rs. 30 billions). In order to enable it to carry out its operations effectively to give new connections and to meet the challenges of likely gas shortages, and to carry out its expansion plans to meet these shortages through likely imports of gas either through Pak-Iran gas pipeline or LNG, it is important that SSGC becomes a financially viable company and the current policy of OGRA of penalizing SSGC for connections being given by it in the remote areas of Sindh and Balochistan on government directives needs to be reviewed.
Any benefits to SSGC results in 35 % taxes payable to government of Pakistan and of the balance 65%, about 75% is payable to the government of Pakistan or one of government owned entities. Therefore, any improvement in the operations of SSGC would be in the best interest of the government and the consumers (in the shape of provision of gas).
It may be noted that provision of piped gas to consumers at their doorstep is very convenient to the consumers as opposed to liquid fuels. It may be observed that the gas price increase has more to do with international factors and the management has hardly any control over the gas price.
If SSGC is deprived of fair returns because of UFG disallowance, lower return on its capital etc., SSGC's ability to carry out its expansion plans and give connections to new consumers would be adversely affected and this may seriously affect the availability of gas in the future. As the existing gas reserves of the country are depleting the consumers have to understand that unless a major discovery/discoveries of gas is made in Pakistan or shale gas is exploited from its existing wells, the government will not be in a position to provide cheap gas to the consumers who will be vulnerable to the price movements in the international markets.
It may be noted that small domestic consumers are currently provided a discount of about 70% in gas prices as against the cost of gas being paid by the gas distribution companies to gas producing companies.
BANKISLAMI DEPOSITS UP 83 PC
BankIslami's deposits increased to Rs. 22.8 billion, which showed a phenomenal increase of 83% and almost 100% increase in customer base during the first nine months of the current year.
BankIslami Pakistan Limited announced its financial results for Q309. The net spread earnings in Q309 increased to 41 percent to close at Rs. 729 million as opposed to Rs. 517 million in Q308.
The bank has made major inroads in the retail deposit base, which constitutes 90 percent of the overall deposit base. As a result of fully allocating the cost of the 66 branches opened by end of last year, the bank reported accumulated net loss of Rs. 495 million. The bank is all set to achieve a breakeven in the fourth quarter of this year.
BankIslami is currently operating with 102 online branches in 49 cities nationwide. Approved by a renowned Shariah Board, the bank provides complete range of Shariah compliant products to its customers.
PAKISTAN'S LIQUID FOREIGN RESERVES POSITION
The total liquid foreign reserves held by the country stood at $ 14,428.9 million on 24th October, 2009.
The break-up of the foreign reserves position is as under:-