The ministry of petroleum and natural resources has decided to increase gas price from January 1 to collect at least Rs 60 billion from Sui Southern (SSGCL) and Sui Northern (SNGPL) within a six months period by the end of FY15.
The decision, the market observers believe, has been taken in line with the advice of the International Monetary Fund (IMF) that recently released $1.05 billion to resource-constrained Pakistan after the completion of its fourth and fifth review under its Extended Fund Facility (EFF).
“Gas price would increase for industrial consumers by 53 percent, commercial category of gas consumers by 18 percent, fertilizer plants by 64 percent and for captive power plants by 30 percent,” claimed the analysts at Shajar Research.
If the above decision is implemented, feedstock gas prices would increase from Rs 123 per mmbtu to Rs 200 per mmbtu that, the analysts said, would signal income dilution for the fertilizer sector.
In this regard, the analysts expect that Fauji Fertilizer Company, having the largest market share, to take the “biggest” hit. For the cement sector, they said the captive power plants were expected to see gas tariff hike by 30 percent. This was expected to dilute the earnings of the cement players like LUCK, DGKC and MLCF, they added.
Giving their outlook, the analysts recalled that the federal government had to increase gas prices from July-14. “However, due to uncertain political environment government withheld its decision to inflate the prices,” the analyst observed.
“Under the IMF programme, (the) government is bound to enhance its revenue sources through GIDC and increase in power tariff from January onwards,” they claimed.
With no progress on GIDC collection, the analysts believe, this would translate into implementation of the above-decision regarding gas prices increase.