RS. 630 M 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 price.
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 the highest.
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 added.