Analyst Briefing: Role of SNGP in North South Pipeline project not yet identified by govt

September 8, 2020: Sui Northern Gas Company held its analyst briefing on Monday to discuss the ongoing activities and future prospects of the company.

The company had reported a consolidated Profit after Tax of Rs.7.1 billion (EPS: 11.16) , i.e. nearly 36% lower as compared to the last year.

According to a report by Fortune Securities, the management of the company spoke about how the company had been relying excessively on the import of RLNG, owing to the depletion of indigenous gas reserves. This has resulted in the allocation of both the products being equal in the company’s energy mix, and the company plans to continue relying on imported RLNG as there still remains a shortage of ingigenous resources.

Commenting further on the two products, the management said that the pricing structure of indigenous gas is based on a cost-plus formula, whereas that of RLNG is determined on a monthly basis. Furthermore, the ROA of indigenous gas currently stands at 10.95%, while that of RLNG stands at 1.52%.

The management is also expecting to enlarge its customer base, which presently stands at nearly 7 million, to around 8.8 million via network expansion. The distribution network of SNGP has seen a compounded annual growth of 7.2% over the last twelve years, with expansion of 4,700 km underway and 21,169 km yet to be sanctioned. Moreover, the overall estimated cost of expansion is likely to amount to Rs. 70 billion.

The management also shut down speculations that the company can control prices independently to earn additional revenue. Further backing this statement, it said that OGRA had revised the tariff regime from FY19 onwards, shifting from static basis of 17.5% on average Net Operating Assets to dynamic basis constituting of 17.43% WACC. This model will remain implemented for 3 years; however, if WACC changes by +2%/-2%, this will be re-adjusted, it added.

With regards to the operating expenditures, the company said that the UFG losses increased by 93 basis points to 11.86% in FY19. Any expenses over the UFG, which is benchmarked at 5% fixed with a variable component of 2.6%, would be borne by the company and not passed on to the consumers, thus further straining the profit margins, it added.

The management said it had identified 3 main projects, namely TAPIgas pipeline, IP gas pipeline and North South pipeline, whose commercialization would help replenish diminishing gas reserves and improve company's profitability. However, on the North South pipeline project, SNGP’s role has not been yet completely identified by GoP.

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