Even though, the recent hike in the prices of gas would generate additional revenues for the government, it would at the same time impact the major listed sectors adversely, if the same was not passed on to the consumers, the analysts warned.
The federal government through issuing two notifications, cumulatively increased gas prices for various categories of consumers by 14 to 207 per cent. “Where former reflects the impact of change in international energy prices, the latter is intended to rationalise gas demand by reducing price anomaly with other alternative fuels,” observed a Topline Research report issued Monday.
This, the report said, would help the government to generate additional revenue. The report said under recent gas price revision, gas prices for domestic (all categories), commercial and industrial consumers, increased by 14 per cent while gas prices for WAPDA companies and IPPs increased by 7-16 per cent. For fertiliser sector, which consumes 10-12 per cent of total countries gas, OGRA increased both fuel and feed stock prices (for old plants) by 14 per cent. On the other hand, the report said, one time gas cess by government of Pakistan was imposed on industrial consumers (3 per cent of existing price), power companies (6-19 per cent) transport/CNG (15 per cent) and feed stock for old fertiliser plants (193 per cent).
Operating on fixed return formula, the increase would not have direct bearing on SSGC and SNGPL profitability, but is expected to ease the strain on individual company’s gas position.With 207 per cent increase in feed gas prices for old fertiliser, the impact will be negative on FFC, FFBL, Engro old, Agritech and Dawood Hercules. However, the impact of gas increase is limited on new plants like Engro Enven and Fatima, as their feed price increased by only 1.8 per cent (exchange rate variation). However, 14 per cent increase in fuel price is similar for both old and new plants. “According to our estimates, the highest impact will be on FFC (Rs350-370 per bag) unless, it is passed on to the consumers while minimum impact would be on Fatima (Rs20-25 per bag),” the report said.
On Engro, the weighted average impact will be around Rs180-200 per bag, since there is no feed impact on the new plant.
“Similarly, it bodes negative for textile sector, however, it will be slightly positive in long term as gas cess would some how improve gas availability,” it said. On account of pass-through nature of fuel component in the IPP tariff, 35 per cent increase due to tariff increase and cess imposition would have no bearing on the individual company’s profitability.
Furthermore, the report said, with E&P profitability linked to wellhead gas prices rather than consumer prices, the aforementioned gas price revision would not have any bearing on the sector.