Oil & Gas Marketing Companies: SUI NORTHERN GAS PIPELINES LIMITED - Year Ended June 30, 2006 (Audited)
Sui Northern Gas Pipelines Limited (SNGPL) is the largest integrated gas company serving nearly 2.7 million consumers in North Central Pakistan through an extensive network in Punjab and NWFP.
SNGPL's transmission system extends from Sui in Balochistan to Peshawar in North West Frontier Province (NWFP) comprising over 6195 KM of Transmission System (Main lines & Loop lines). The distribution activities covering 831 main towns along with adjoining villages in Punjab & NWFP are organised through eight regional offices. Distribution system consists of 46,964 KM of pipeline and 42,622 KM of service lines (as at June 2006).
The company, incorporated as a private limited company in 1963, was converted into a public limited company in January 1964 under the Companies Act 1913, now Companies Ordinance 1984, and is listed on all the three stock exchanges of the country.
The principal activity of the company is the purchase, transmission, distribution and supply of natural gas. The company has over 42 years of experience in operation and maintenance of high-pressure gas transmission and distribution systems. It has also expanded its activities to undertake the planning, designing and construction of pipelines, both for itself and other organisations.
The authorised capital of SNGPL as on June 30, 2006 comprised 1.5 billion ordinary shares of Rs 10/-each. The paid up ordinary share capital on this date stood at Rs 4.992 billion subscribed by 14,874 shareholders. The Government of Pakistan was the largest single shareholder with 36% voting rights due to ownership of nearly 180 million shares. Dawood Hercules Chemicals Limited held nearly 20% shares. The general public (14,604 shareholders) had 4% voting power. The rest of the shares were held by corporate sector including banks and DFIs.
UNDER THE EXISTING PRICING AND REGULATORY REGIMES, FOLLOWING OPERATING CONDITIONS HAVE BEEN LAID DOWN:
Allocation of gas from different sources is made by GOP while the wellhead prices are fixed by the OGRA per Petroleum Concession Agreements/contracts.
Consumer selling price including sales to major consumers (ie power, fertilisers etc) are notified by the GOP/OGRA.
SNGPL is guaranteed a rate of return @ 17.5% on its net fixed assets in operation (ROA) for meeting financial charges, taxation and a reasonable return to the shareholders.
The prescribed price ie the price which the company is allowed to retain out of consumers selling price to meet the covenanted rate of return, is determined by OGRA.
The External Auditors, in their Report to the Members state that without qualifying their opinion, they draw the attention to Note 4.17 to the financial statements, which explains that during the year ended June 30, 2006, the company's return before taxation, interest and other charges on debts is less than minimum required return.
NOTE 4.17 READS: "Under the provisions of the World Bank loan 3252-PAK, the company is required to earn an annual return of not less than 17.50% per annum on the value of its average fixed assets in operation (net of deferred credit), before corporate income taxes, interest and other charges on debt and after excluding interest, dividend and other non- operating income.
Any deficit or surplus on account of this is recoverable from or payable to the Government of Pakistan as differential margin or gas development surcharge. During the year the company although met the covenants mentioned above, yet it could not meet the benchmarks prescribed by the Regulator and as a result the return for the year on the aforesaid basis works out to 14.11% (2005: 15.47%)".
The matter has been discussed in the Directors' Report under "Regulatory Reporting" as follows: "The Company was granted a license in the year 2003, to operate within specified areas and to undertake the business of gas transmission and distribution. Although a fixed return of 17.5% has been prescribed under World Bank loan covenants, yet the Regulator has been authorised to prescribe prices to allow the final revenue, to the licensee, after certain adjustments. In this regard the Regulator has reduced the total return of 17.5% by Rs 1,103 million for certain expenses including UFG being over and above the prescribed target of 5.85%. These deductions resulted in reduction of our EPS by Rupee 1.46 for the financial year 2005-06".
The total gas sales for the year under review, is 571,481 MMCF showing an increase of 6.40% over the previous year. The sector-wise break-up of gas sales indicates 32% gas sales to the Power Sector, 9% Fertiliser, 2% Cement, 34% General Industries and 23% to the Domestic and Commercial sectors. New customers (numbering 211,130) were added, raising the total to 2,688,965 customers.
The company's operations during the past six years have been highly profitable with handsome dividends. The company is highly liquid and enjoys sound financial position. Comparative performance parameters for 2006 and 2005 are given below.
SNGPL's plans for future include taking up Project-IX (573 Km, 12"~ 36" dia, pipelines), which will be executed in two phases. The Phase-I (Advance Action Plan P-IX) includes the construction of 140 Km, 24" diameter Gurguri - Kohat - Nowshera line. The basic objective of Project-IX is to absorb additional gas available from existing and new sources viz Gurguri, Salsabeel, Haseeb and gas sources of Potohar region and enhancement of capacity down stream of Multan to alleviate the acute shortage of natural gas and improve pressure drop position, through system up-gradation with loopline and Compression facilities enhancement. This project will revolutionise the economic scenario of NWFP by making the province self sufficient in terms of its energy requirements.
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Performance Statistics (Rs Million) (Audited)
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Balance Sheet- As on June 30 2006 2005
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Paid up Capita: 4,992 4,992
Reserves: 10,117 7,892
Shareholders Equity: 15,109 12,884
Long term Loans: 7,423 10,079
Security Deposits: 5,866 5,280
Deferred Credit: 16,664 10,279
Deferred Tax: 6,047 6,112
Deferred Liabilities-Staff: 312 382
Total Non-current Liabilities: 36,312 32,132
Capitalisation: 51,421 45,016
Current Liabilities: 25,816 19,998
Total Liabilities and Equity: 77,237 65,014
Fixed Assets: 43,568 40,449
LT Loans and Deposits: 222 211
Current Assets: 33,447 24,354
Total Assets: 77,237 65,014
Conting. & Commitments: 4,680 4,840
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Ratios:
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Current ratio: 1.30 1.22
Debt-Equity Ratio: 33:67 44:56
Total Liabilities/Total Assets-%: 80% 80%
Book Value Per Share: 30.27 25.81
Share Price- Rs (27-12-06): 66.90 -
Price/Book Value Ratio: 2.21 -
Conting.& commit./Equity: 31% 38%
Income Statement 2006 2005
Gross Sales: 122,594 97,487
GOP Taxes: 16,743 14,110
Net sales: 105,851 83,377
Cost of Gas Sold: 91,986 71,192
Gross Profit: 13,865 12,185
Operating Profit: 4,817 4,639
Net other income: 302 -378
Profit before Taxation: 5,119 4,261
Profit after taxation: 3,722 2,736
Earnings per share (Rs): 7.46 5.48
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Ratios:
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GOP Taxes/Gross Sales: 14% 14%
Net sales/Gross sales: 86% 86%
Gross Profit/Net Sales: 13% 15%
Operating profit/Net sales: 5% 6%
Profit after tax/Net sales: 4% 3%
Net profit to Equity: 25% 21%
R. O. A. %: 5% 4%
R. O. C. E. %: 7% 6%
Asset Turnover Ratio - times: 1.37 1.28
Fixed Assets Turnover- times: 2.42 2.05
Receivables Turnover - times: 7.29 5.87
Days Receivables: 50 62
Cash dividend - %: 30% 30%
Stock Dividend- %: 10% 0%
Cash Flow Summary 2006 2005
Net Cash flow, Operations: 16,164 7,379
Net Cash flow, Investing: -6,034 -6,691
Net Cash flow, Financing: -3,045 -892
Change in Net Liquidity: 7,085 -204
Net Liquidity at beginning: 8,316 8,520
Net Liquidity at end of period: 15,401 8,316
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COMPANY INFORMATION: Chairman: Altaf M. Saleem; Managing Director: A. Rashid Lone; Deputy Managing Director: M. Azam Khan; Director: Tariq Iqbal Khan; Company Secretary: Uzma Adil Khan; Chief Financial Officer: Shah Muhammad Chaudhry; Legal Advisors: 1- M/s Surridge & Beecheno; 2- M/s Salim Baig and Associates; Auditors: 1- Ford Rhodes Sidat Hyder & Co, Chartered Accountants; 2- Riaz Ahmad & Co, Chartered Accountants; Registered & Head Office: Gas House, 21 Kashmir Road, Lahore 54000, Pakistan; Shares Registrar: M/s Hameed Majeed Associates (Pvt.) Limited; Web Address: www.sngpl.com.pk
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