Rs 630m bids for LPG business
Privatization process kicked off
By SHABBIR H. KAZMI
Sep 04 - 10, 2000
Privatization Commission conducted open bidding for
Liquefied Petroleum Gas (LPG) business of Sui Southern Gas Company (SSGC),
Pakistan State Oil Company (PSO) and Sui Northern Gas Pipeline (SNGPL).
The accumulated bids amounted to Rs 630 million and the participants
were mostly foreign investors. The offers may not be as high as expected
but they could be certainly termed attractive keeping in view Pakistan's
economic conditions. It may pave the way for privatization of other
state-owned enterprises, i.e. Pak Saudi Fertilizer, KESC.
The GoP has been expressing its intention to
privatize state-owned entities for a considerably long time but there
was no success. Though, the situation has been entirely different since
May 1998 when Pakistan conducted nuclear tests. However, interested
parties, both local and international, got a feeling that there was no
will for privatization. The successful bidding of the LPG business and
the keen interest of foreign investors has nullified this perception to
a large extent.
According to some analysts the keen interest of
bidders was not without any reason. Many of the interested parties
already have stake in Pakistan. Knowing that the GoP will be
liberalizing the LPG trade and PARCO refinery will commence commercial
production in September — enhanced availability — they were willing
to enhance their exposure in Pakistan. The LPG trade is still
attractive. For example SSGC earned a net profit of Rs 37.6 million from
LPG operations during 1998-99. It had earned a profit of Rs 58.5 million
during 1997-98. The reduction in profit for the year 1998-99 was due to
increase in ex-refinery price without a corresponding increase in sale
The exceptional interest in SNGPL was due to the fact
that it enjoys a quota of 17,500 tonnes but was not able to take the
full advantage over the years. It was able to sell 10.98 tonnes in
1997-98 and 13.86 tonnes during 1998-99. It earned Rs 7.671 million
profit in 1998-99 and Rs 3.546 million in 1997-98 from LPG business. The
potential for increase in LPG consumption in SNGPL's franchised area is
In February this year Privatization Commission had
received Expressions of Interest (EOls) from the interested parties. Ten
companies were pre-qualified for bidding — Caltex, Lilley, Skyways
Joint Venture, SHV Energy, Shell, Pakistan Oilfields Limited (POL),
Petrosin, Gas Power, TOTAL and Winston Fuels. The Commission received
sealed bids that were opened in the presence of representatives of the
companies and media. The three highest bidders for each LPG business
were allowed to contest in open bidding. The final bids were: Caltex
offered Rs 369 million for LPG business of SSGC, SHV Energy offered Rs
140 million for LPG business of PSO and Petrosin offered Rs 121 million
for LPG business of SNGPL. The offer will be presented to the cabinet
committee on privatization (CCoP) that is expected to meet in the first
week of September.
The SSGC business was offered for sale first. Caltex
(Rs 360 million), SHV Energy (Rs 340 million) and Shell (Rs 120.99
million) were the three main bidders. Shell did not participate in open
bidding that followed the opening of sealed bids. After a brief contest
Caltex emerged to be the highest bidder by offering Rs 369 million.
SHV Energy, Lilley and Caltex were asked to compete
for the sale of PSO's LPG business as the top three bidders. SHV Energy
(Rs 140 million), Lilley (Rs 61 million) and Caltex (Rs 50 million).
Lilley and Caltex did not participate in open bidding leaving it to SHV.
However, the most interesting bidding was held among
three parties for the SNGPL business and the offer jumped up. The sealed
bids were: Petrosin (Rs 90 million), SHV Energy (Rs 85 million) and POL
(Rs 80 million) who also participated in the open bidding which started
from Rs 91 million and ended at Rs 121 million in favour of Petrosin.
The major assets available in SSGC's LPG business
include quota of 20,000 tonnes per annum, bottling plant and storage
tank in Karachi, Quetta and Dhurnal, and a developed nationwide network
of 300 dealers. PSO's assets comprise 17,500 tonnes per annum quota,
bottling plants, storage facilities at Karachi, Lahore, Dhurnal,
Akora-Khattak and Meyal with a wide spread distribution network in
Karachi and various cities of Punjab. SNGPL's quota is 17,500 tonnes per
year, while other assets of the Company include storage tanks in Meyal
and Dhurnal for 530 tonnes of LPG, bottling facilities and developed
marketing network of 76 distributors supplying LPG to 44 towns in
Punjab, NWFP and Azad Jammu and Kashmir.
The oil and gas sector has been given top priority by
the GoP. The first successful round of privatization has paved the way
for future sales in oil and gas sector under the new privatization plan.
After the bidding, Altaf Saleem, Chairman,
Privatization Commission said the response to privatization process was
good as record 25 companies had submitted EOls for the sale of LPG
business. The process would continue on alternate months while
simultaneously several units would be offered for privatization, he