SUI SOUTHERN GAS COMPANY LIMITED

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Dec 10 - 16, 2012

Sui Southern Gas Company Limited (the company) is Pakistan's leading integrated gas company. The company is engaged in certain activities related to the gas business including the manufacturing and sale of gas meters and construction of gas projects. The main activity of the company is transmission and distribution of natural gas in Sindh and Balochistan. The company is listed on the Karachi, Lahore and Islamabad stock exchanges.

FINANCIAL PERFORMANCE (Rs. Million)

INDICATORS NINE MONTHS ENDED 31 MARCH
2012 2011
Operating loss - gas business (1,688) (2,742)
Other operating income 2,293 2,768
Operating results 605 25
Non-operating income 8,116 7,495
Profit after tax 2,102 2,231
Earnings per share 2.39 2.53

Presently, the government owns the majority of the shares which is over 70 per cent. The company has an authorized capital of Rs. 10 billion of which Rs 6.7 billion is issued and fully paid up.

In the nine months period, the company had posted after tax profit of Rs. 2,102 million as compared to profit of Rs. 2,231 million for corresponding period last year. The basic earnings per share (EPS) decreased to Rs. 2.39 compared to Rs. 2.53. Despite efforts to control the unaccounted for gas (UFG) it reached a level of 11.23 per cent as against currently permissible. This had resulted in reduced revenue determination of Rs. 3,651 million (2011: 2,236 million) in the nine months period on account of excess UFG.

The company plans to maintain its focus on UFG control projects and is planning to initiate major capital expenditure project with primary objectives of UFG reduction.

The current ratio was within prudential regulation guidelines, though there had been a slight decline to 0.98 (June 2011: 1.03). Investments, short term loan to subsidiary and capital expenditures had to be partly financed from short term borrowings due to reduced operating cash flows. Decline in operating cash flows by Rs. 3,921 million as compared to corresponding period last year had been mainly due to increase in amount due from KESC and PSML.

The capital expenditure during the current nine months period was Rs. 5,326 million as compared to Rs. 6,949 million for the previous corresponding period. Addition to operating fixed assets was Rs. 4,150 million compared to Rs. 5,353 million in the corresponding period last year.

SSGC LPG (Private) Limited (SLL), a fully owned subsidiary of the company, has acquired property plant and equipment of Progas (Private) Limited. For this purpose the company provided Rs. 1,301 million to SLL as a short term loan and Rs. 999.9 million as advance for issuance of shares to the company.

During the initial period, year to date, the subsidiary had earned revenue of Rs. 52.44 million and incurred a net loss of Rs. 108.93 million. Due to supply constraints, year to date, gas sales decreased marginally by 1 per cent to 264.9 BCF as compared to volume of 268.0 BCF in the corresponding period last year. The average sales price per MMBTU increased by 16 per cent to Rs. 379.30 compared to Rs. 326.85 due to increase in consumer prices notified by OGRA, however, gas sales revenue, partly offset by lower sales volume increased by 14.7 per cent.

The sales increased by 1 per cent to 492,336 meters as compared to 485,936 meters in the corresponding period last year. Also the meter manufacturing plant produced 505,187 meters compared to 479,050 meters in the corresponding period last year, an increase of 26,137 meters.

SSGC continues to face shortage of natural gas mainly due to increase in gas demand, whereas, the supply of gas marginally increased by 0.21 per cent to 300.64 BCF compared to the corresponding period last year. However, the company endeavored to maintain supplies to the customer base. The average well-head purchase price increased by 10.6 per cent and stood at Rs. 300.93 per MMBTU. During the period under review, the company's customer base increased to 2.457 million. The company extended 88 new industrial connections, 257 commercial and 93,891 domestic connections in the first nine months of the current financial year.

Furthermore, the gas distribution system was extended by 1,101 km while another 143 km of distribution lines were laid under the rehabilitation projects to curtail leakages and resulting lines losses.

The company's capital expenditure worth approx. Rs. 1,026 million has been incurred on the 29 km Kunnar-Pasakhi pipeline project inaugurated in January 2012. It was expected that the project would help in meeting energy shortages by adding 100 MMCFD gas in the distribution network.

FUTURE OUTLOOK

Pak-Iran gas pipeline project no doubt is the solution of gas crisis in Pakistan. And no one country should interfere between in this project. On the other side SSGC is striving to solve the gas shortages in Pakistan. The company is also engaged with project developers for setting up LNG infrastructure in Pakistan for the purpose of importing natural gas, through a third party access regime.

In addition, the government through company and SNGPL is initiating purchase of LNG from prospective LNG terminal developers and direct purchase of LNG from LNG suppliers on government to government basis. The company is also exploring fast track option of retrofitting its LPG terminal and has invited proposals. Implementation of LNG project will usher a new era of sustainability while providing numerous advantages including fast track solutions to energy crisis and a secured supply of natural gas.