SUI SOUTHERN GAS COMPANY LTD.
Research Analyst, PAGE
Dec 28, 2009 - Jan 03, 2010
Sui Southern Gas Company Limited (SSGCL) is Pakistan's leading integrated gas company. The company is engaged in the business of transmission and distribution of natural gas besides construction of high pressure transmission and low pressure distribution systems.
SSGCL's transmission system extends from Sui in Balochistan to Karachi in Sindh comprising over 3,200 KM of high pressure pipeline ranging from 12 - 24î in diameter. The distribution activities covering over 1200 towns in the Sindh and Balochistan are organized through its regional offices.
In 2006-07, an average of about 357,129 million cubic feet (mmcfd) gas was sold to over 1.9 million industrial, commercial and domestic consumers in these regions through a distribution network of over 29,832 KM.
The company also owns and operates the only gas meter manufacturing plant in the country, having an annual production capacity of over 550 to150 meters.
The company has an authorized capital of Rs. 10 billion of which Rs 6.7 billion is issued and fully paid up. Government owns 70 percent shares in the SSGC.
REVIEW OF OPERATIONS
Gas sales volume during 1st quarter 2009-10 increased to 101 bcf versus 97 bcf in the corresponding period of FY 2008-09. By value (after GST), it increased to Rs. 27.6 billion as compared to Rs. 25.9 billion.
OPERATIONAL RESULTS ENDED SEP 2009 (Rs in '000)
INDICATORS SEP 2009 SEP 2008 Sales 31,471,574 29,426,582 Gross profit 987,942 1,639,906 Administrative expenses (425,059) (390,662) Finance cost (1,509,558) (831,205) Profit before tax 196,248 133,022 Profit after tax 65,312 86,464 Earnings per share 0.10 0.13
Conversely, cost of gas sold dipped to Rs. 22.4 billion versus 24.1 billion in the comparable quarter of previous year. The increase or decrease in sale and purchase price has no impact on companies profits due to its unique tariff regime.
In the three months, the company permitted 81 new industrial connections, 441 commercial, and 28,282 domestic. As a result, its customer base increased to 2.174 million.
Gas distribution system has been extended by 595 km while another 87 km of distribution lines have been laid under rehabilitation activities. With increased emphasis on domestic connections, especially in new towns and villages, the company's resources are overstretched leading to additional UFG whereas recoveries are also posing a serious challenge.
Meter manufacturing plant produced 138,840 meters versus 174,850, a decrease of 21%. Sales to SNGPL were 105,000 meters as compared to 138,100 meters reflecting a decrease of 24%. The profit of the plant increased by Rs.6 million to Rs. 39 million due to increase in sales prices of G-1.6 and G-4 meters.
There is a compensating increase of Rs. 794 million in non-operating income and Rs. 771 million in financial cost mainly due to booking of financial charges on delayed recoveries from KESC, WAPDA, and SNGPL and delayed payments to producers namely OGDC, PPL and GHPL.
Profit before tax is recorded slightly higher than the comparative quarter of last year. Unaccounted for Gas (UFG) phenomenon, by which gas volumes are lost during transmission and distribution operations, is crucial to the companies bottom-line.
After deploying of resources, the UFG element was brought down to 6.43% compared to 6.87% in the corresponding quarter of the previous year and 7.93% for the whole FY 2008-09. The excess UFG of 1.43% over permitted bench mark of 5% for FY 2009-10 resulted in loss in tariff return of Rs. 320 million compared to the hit of Rs. 414 million suffered in the corresponding quarter of the previous year. It is interesting to note that until 2003 the actual UFG remained well above 7% per annum and no penalty was charged on UFG.
Capital expenditures incurred in the three months added up to Rs. 908 million as compared to Rs. 1,909 million for the previous corresponding period. Transfer to fixed assets amounted to Rs. 702 million versus Rs. 801 million in the corresponding period of the previous year.
PHYSICAL PERFORMANCE OF SSGCL
NAME OF ACTIVITY JULY-MARCH 2008-09 SECTOR-WISE GAS CONSUMPTION (MMCFD) Power 91,360 Fertilizer 19,303 Cement 3,401 CNG/Transport 16,377 General Industry 93,011 Commercial 7,218 Domestic 54,206 Total 284,875
In close collaboration with SNGPL and Itron of France under whose license G-4 meters are produced, the Meter Plant is working to produce a most modern meter, specifically made for local environment and with a number of anti-theft devices. The state of the art V-3 model is expected to be introduced by year's end.
As the facilitator of Pakistan 'Mashal' LNG Project (PMLP), the company has issued a letter of support to 4Gas to facilitate them to secure LNG for PMLP. The completion of project is planned in 2011-12 using initially a Floating Storage and Re-gasification Unit (FSRU) based solution followed by a conventional land based terminal.
Currently, the government has appointed price negotiation committee that is meeting LNG suppliers and terminal developers to finalize terminal tariff and LNG pricing mechanism for subsequent approval by ECC.
The companies after tax profit of Rs. 65 million as compared to Rs. 86 million was attributed to the rising incidence of UFG and liquidity crunch in the system resulting in higher financial cost.
Therefore, the management of SSGC should take all possible steps to reduce transmission and distribution losses, as this determines companies profitability.