As always, the country’s largest state-owned gas company, SNGPL only recently announced its financial performance for FY18 and 1QFY19. The gas utility witnessed a significant increase in gas sales revenues in both FY18 and 1QFY19 on a year-on-year basis, and earned more profits. Hence, it announced 70.50 percent cash dividend for FY18, inclusive of 15 percent interim dividend; and another 15 percent interim cash dividend in 1QFY19.
The earnings for FY18 were the highest in the company’s history led by UFG losses of 10.93 percent despite the change in formula of including the law and order based allowance. UFG losses for 1QFY19 stood at 11.5 percent, up by 0.6 points against 10.9 percent in FY18, as per a research note by AKD Securities.
SNGPL saw a 37 percent increase in gross profits for FY18 and a 100 percent rise in 1QFY19, on a year-on-year basis. Mammoth growth in finance cost was partially offset by increase in other income. For FY18 and 1QFY19, SNGPL posted an earnings growth of 29 and 35 percent, year-on-year, respectively.
A key reason for the improvement in profits for SNPGL in these periods has been the growing capitalisation of assets, and hence the increase in return on them. The gas utility has targeted around Rs16 to 20 billion for FY19 out of which Rs12 billion has already been capitalised.
Also, SNGPL earned better in FY18 and 1QFY19 because of the revision in UFG benchmark as a result of a UFG study carried out by OGRA. The revision in UFG from July 1, 2017 not only increased the fixed UFG benchmark from 4.5 percent to 5 percent, but it made a further upward adjustment of 2.6 percent, taking the total UFG to 7.6 percent. Along with this, another factor that lifted earnings was the one-off event where the gas utilities have been allowed to retrospectively adjust their UFG benchmark to 7.1 percent for FY13-17 against the actual allowed UFG.
The liquidity position of SNGPL continues to be in shambles because of the accumulation of differential margin that stood at Rs122 billion by the end of FY18. These are the receivables created by the disparity between prescribed gas prices and consumer tariff, and their recoverability has always been a key concern. On the payables side, SNGPL’s liquidity continue to hamper it from making timely payments to PSO and PLL for RLNG.
Settlement of differential margins only depends on increasing the gas prices that the governments have kept low despite OGRA suggesting increase. The current government has made a move to increase gas prices when it came to power, which could be why differential margin for 1QFY19 is seen falling on a year-on-year basis. Nonetheless, settlement of this outstanding amount vastly depends on further increase in gas prices.
On the UFG front, it must be noted that that UFG is not just caused by theft and pilferage; leakages and measurement errors are areas that if corrected by the utilities could significantly lower the losses. Instead, gas utilities have been focusing on getting higher UFG levels in consumer tariffs. Another policy change to lower UFG is prioritising power sector over residential and commercial sectors for gas provision as UFG in power sector is essentially zero.
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