SUI SOUTHERN GAS COMPANY LTD.

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
July 11 - 17, 2011

FINANCIAL PERFORMANCE (RS IN '000)

INDICATORS 31ST MARCH 2011
(UN-AUDITED)
20TH JUNE 2010
(AUDITED)
Total Non Current Assets 47,835,787 42,924,836
Total Current Assets 86,087,626 67,834,786
Total Current Liabilities 87,168,145 66,631,297
Total Non-Current Liabilities 31,469,489 30,055,980
Total Equity 15,285,779 14,072,345

Sui Southern Gas Company limited (SSGCL) is engaged in the business of transmission and distribution of natural gas besides construction of high-pressure transmission and low-pressure distribution systems.

SSGC transmission system extends from Sui in Balochistan to Karachi in Sindh comprising over 3,220 km of high pressure pipeline ranging from 12 - 24" in diameter. The distribution activities covering over 1200 towns in the Sindh and Balochistan are organized through its regional offices.

An average of about 388,828 million cubic feet (MMCFD) gas was sold in 2009-10 to over 2.2 million industrial, commercial and domestic consumers in these regions through a distribution network of over 37,000 Km. The plant produced 479,050 meters versus 541,250 meters in the corresponding period last year, i.e a decrease of 62,200 meters or nearly 11 per cent: this was due to decline in sale by 21 per cent to 319,400 meters as compared to 404,400 meters in the corresponding period last year.

The increase in prices of both type of meters resulted in increase in profit to Rs141 million as compared to profit of Rs74 million for the corresponding period.

While the company's customer base increased to 2.324 million, the company extended 176 new industrial connections, 1429 commercial and 79,955 domestic connections in the first nine months of the fiscal year 2010-11.

The fiscal year 2010-11 has seen national energy shortages take a turn for the worse. The company is facing acute shortage of natural gas mainly due to decreased supplies from producers and increased gas demand: the situation has been made worse by the temporary closure of Bhit gas field. Despite increase in the number of gas producing fields giving their supplies into the SSGC transmission and distribution system from 17 to 18 compared to the corresponding period last year, the supply of gas decreased by 6.6 per cent to 300 BCF. However, the company has been maintaining supplies to the customer base and gas has been allocated according to GoP's gas load management policy. The average well- head purchase price increased by 18.3 per cent and stood at Rs271.96 per MMBTU. Due to continued supply constraints, year to date, gas sales decreased by 8 per cent to 268 BCF as compared to volume of 290.7 BCF in the corresponding period last year. The average sales price per MMBTU increased by 10 per cent to Rs326.85 versus Rs298.6 due to increase in consumer prices by OGRA thus gas sale revenue increased only 2 per cent.

In the nine months period, the company posted after tax profit of Rs2,231 million as compared to loss of Rs306 million for the corresponding period in 2010. As a result the earnings per share improved to Rs2.66 versus negative Rs0.37, mainly due to reclassification by OGRA of operating income components as non operating income and higher asset base and reduction in effective in effective tax rate.

The management has successfully obtained sales tax refunds of Rs6.4 billion. This amount includes sales tax refund orders of Rs1.2 billion received after March 2011, when the amount outstanding was Rs5.8 billion.

The company's capital expenditure during the nine months period was Rs6.9 billion as compared to Rs3.7 billion for the previous corresponding period. Addition to operating fixed assets was Rs5.4 billion versus Rs3.3 billion in the corresponding period last year.

KESC is the single largest customer and debtor of SSGC with overdue of Rs25 billion. The management has been proactively negotiating with KESC. As a result, since November 2010, KESC has been paying an amount equivalent to its monthly bill. SSGC treats the outstanding amount from KESC as part of the inter-corporate circular debt.

The company is suffering line losses about 400 MMCFD gas, having potential to generate 2000 mw of electricity. It is estimated that almost 50 per cent of the losses are due to leakages while the rest can be attributed to slow meters, theft and measurement errors. If the situation continues to persist, the current 8 per cent unaccounted for gas (UFG), the company is faced with, will rise to 11 per cent by 2016.

Pakistan is producing four bcfd of gas, but the fields are fast ageing, this figure will shrink to two bcfd by 2020 if adequate measures are not taken to prevent the downslide. A large quantity of gas is used for cooking and heating purposes and all the gas appliances currently used have low efficiency. Pakistan is sitting on top of 420 mmcfd of indigenous gas reserves that need to be immediately explored to put a leash on the aggravating energy crisis. There is a widening demand and supply gap which calls for urgent implementation of the LNG project and that a number of private sector LNG projects in the short term can be considered on war footing.

No doubt, SSGC is actively engaged with international investors and project developers to explore the prospects of setting up LNG infrastructure in Pakistan for the purpose of importing natural gas, through a fully integrated solution. The company is also striving to improve its financial performance in upcoming months.