SUI SOUTHERN GAS COMPANY LIMITED: (SSGC)

S.M.ABBAS ZAIDI
June 09 - 15, 2008

Sui Southern Gas Company (SSGC) is engaged in the business of transmission and distribution of natural gas as well as construction of high pressure transmission and low pressure distribution systems.

SSGC's transmission system extends from Sui in Balochistan to Karachi in Sindh comprising over 3,200 KM of high pressure pipelines ranging from 12 - 24" in diameter. The distribution activities that cover over 1200 towns in the Sindh and Balochistan are managed through its regional offices. Currently, the SSGC has introduced geographic information system (GIS) to provide fast and easy web access to users, showing pipeline and land use data and aiding in the understanding and visualization of feature locations. The department's biannual internal or external audit is based on ISO 14001:2004 and OHSAS 18001: 1999. Efforts made by the company have been certified by various agencies such as world wildlife fund (WWF), National Forum for Environment and Health (NFEH) and employer's federation of Pakistan (EFP) in anticipation of the challenges ahead. Power generation plants are the biggest customers with 36%, followed by General Industries with 29%, Domestic 17%, Pakistan Steel 5%, Fertilizer 5%, CNG 4%, Commercial 2%, Cement and JJVL-LPG Plant 1% of SSGC. PACRA assigned the long term entity rating of AA- and short term rating of A1+ to SSGC. It donates a low expectation of Credit risk and a strong capacity for financial payments.

FINANCIAL PERFORMANCE:

SSGC

PERFORMANCE INDICATORS

GROWYH IN 1Q08

LIQUIDITY RATIO:

CURRENT

1.04

QUICK TEST

1.02

ASSETS MANAGEMENT

INVENTORY TURNOVER

40 Times

FIXED ASSETS TURNOVER

0.57

TOTAL ASSETS TURNOVER

0.3

DEBT MANAGEMENT

DEBT RATIO

0.85

TIE

0.93

PROFITABILITY

PROFIT MARGIN ON SALE

-0.10%

ROA

-0.03%

ROE

-0.22%

The financial performance of the SSGC shows an increase in the liquidity side because of low profitability and the development of the new projects in Pakistan.

Pakistan's gas supply and demand projections indicate a widening gap of approx 500m cubic feet per day (mmfcd) by the year 2010 the gap started to emerge in FY07-08 and builds up to 2100 mmfcd by 2015, as the current gas fields gradually go off plateau. The calculated amount of the asset management, the inventory turnover is 40 times, fixed assets turnover is 0.57 and total assets turnover 0.3 are recorded in 1Q08 because the net sales increased by 15% during one year and the company is paying off its liabilities. The Company borrowed Sukuk bonds and loans from commercial banks which have resulted in increased debt. Unaccounted for Gas (UFG) is seriously affecting the profitability of the company and it should make serious efforts to control UFG in order to minimize its effect on the profitability of the company.

DEVELOPMENT PROJECTS OF SSGC:

SSGC has developed the concept project structure and implementation modalities for Pakistan's first LNG Project at an estimated cost of US$ 500 million. Another significant milestone of SSGC was the completion of its 24" dia 200 km gas pipeline project from Bajara to Karachi. It will transport an additional 180 mmcfd gas to Karachi from the gas fields of Zamzama and Bhit. The installation of the 62 meter long steel structure bridge for placing the 42 dia gas pipeline at the site of the Pakistan steel sea water intake in the Bin Qasim Ind area is a notable feat for engineering, unprecedented in the history of Pakistan's energy sector. The 42 dia pipeline is the largest diameter gas pipeline commissioned in Pakistan and will eventually serve the Bin Qasim Thermal Power Stations well as the Pakistan 'Mashal' LNG Project in the proposed Bin Qasim Area. Development of Natural Gas Supply Projects in Balochistan including gas supply to Ziarat and enroute villages at a cost of Rs. 370 million has also been completed. The next major project involved construction of 240 KM pipeline for supply of gas to Kalat, this project was also completed in record time of 15 months at a cost of Rs. 470 million. The commissioning of gas infrastructure Rehabilitation and expansion project increased its capacity from 600 mmcfd in the year 2000 to 1600 mmcfd in 2007, by utilizing additional gas from gas discoveries in Zamzama, Bhadra, Khipro, Mirpur Khas and Sinjhoro Gas Fields.

FUTURE OUTLOOK:

SSGC consolidated its expansion and development strategy by increasing the network capacity from 600 mmcfd in 2000 to 1627 mmcfd in 2008. The company has formulated a comprehensive 5 year gas development plan with an estimated budget of Rs. 45 billion. This translates to US$ 150 million per year investment by SSGC from its own resources and commercial borrowings. This is a rolling gas infrastructure rehabilitation and expansion plan aimed primarily at increasing the capacity to transmit additional volumes of gas to the load centers. LNG import project is also under way and is expected to be completed very soon. The company's meter manufacturing plant is also achieving its targets successfully. However the company showed decline in Profit after Tax (PAT) mainly because of disallowances for excess unaccounted for gas (UFG) and other items by the Oil and Gas Regulatory Authority (OGRA). Higher tax charge due to deferred tax liability has also been another factor which has affected the performance of the company. Now OGRA has proposed new gas tariff which will improve efficiency and better utilization of resources. Completion of projects would also enhance the capacity of higher the net sales and profitability in the near future.