Sui Southern Gas Company Limited

Economic Review, April, 2001

Sul Southern Gas Co. Ltd. is a public limited and is listed on the all three Stock Exchanges in Pakistan. The SSGC is engaged in the following activities.

* Purification of natural gas ex-Sui-Field and its transmission along with gas from Pirkoh Sari Hundi, Badin Kandhkot, Mari and Kandanwari gas fields.

* Distribution of natural gas in Sindh anc Balochistan provinces.

* Trading in liquefied petroleum gas (LPG).

* Manufacturing and sale of gas meters.

* Construction contractors for laying of pipelines.

The total sales of SSGC during the year 1998-99 were Rs.16,349,577 million as compared to Rs.16,043,825 million during the year 1997-98. The pretax profit was Rs. 1,026,368 million as compared to Rs.1,464,770 million during the year 1998-99, while the earning per share of SSGC was Rs.1.88 in 1998-99 and it was Rs.1.41 per share in 1997-98. The SSGC has shown an increase of 5% in sales during the year 1998-99 and its profitability has improved by 42% being the cumulative effect of increased sale, reduction in gas purchase price, increase in assets base and decrease in financial charges (the latter two factors have a beneficial impact on the profits under the current gas pricing formula).

Purchase and Sales

Gas sales volumes registered an increase of 4.7% over the previous year rising to 177,153 MMCF. The sale to power sector increased by 3.6%, Pakistan Steel Mills Corporation by 3.6% and other industries by 8.5%. Sale to the newly connected Fauji Jordan Fertilizer Co. Ltd., at subsidized rates for fertilizer stock, was 6,549 MMCF representing 3.7% of the volume. Value-wise the sales registered a growth of 4.6% exclusive of excise duty as compared to last year. Purchase volumes increased by 4.3% whereas in terms of value the cost of gas declined by 19.7%. This is largely attributed to depressed international oil prices as the local gas prices are linked to these prices. The recent increase in the international price will mean higher cost price of gas in the coming year.

Operations

The company operated gas purification plant at Sui Gas field under the required conditions. The plant is operated at 83% of its capacity out of 42% of purified gas is supplied into SSGC network, whereas the balance gas is being supplied into Sui Northern gas network. Gas is also purchased from Pirkoh, Badin and Kandanwari Gas fields and small volumes from Kandhkot, Mari and Qadirpur Gas fields.

Distribution Network

The activity of extending gas distribution network and giving new connections continued during the year 1998-99. A total of 82,040 new connections comprising of 126 industrial, 1,580 commercials and large number of 80,334 domestic connections given as compared to 140,1,657 and 93,832 connections during the year 1997-98 in respective categories. The total number of SSGC's consumers stood at 1.450 million as on June 30, 1999 in 621 villages in Sindh and Balochistan. During the year 579 kilometers of new mains services pipelines were laid and another 170 kilometers were rehabilitated/replaced.

Projects CAPEX

The work was completed during the year on the 82 km transmission pipeline loop of the Quetta Pipeline Capacity Expansion Project. The leftover. Items of the two Gas Purification banks at the Sui Gas fields were also completed. The boilers installation work is now in progress. The foreign currency loan of Asian Development Bank, a part of which was utilized for these projects, closed in January 1999 at US$169 million gross.

LPG and Meter Plant

The two businesses of Liquefied Petroleum Gas (LPG) distribution and Meter manufacturing have performed steadily and registered operating profits. The LPG bottling and distribution business earned Rs.37.6 million on a sale of 19,708 tonnes of LPG in 1998-99. These compares to Rs.59.5 million profits earned on sale of 18,622 tons in the previous year. Profit decline due to increase in bulk tons in the previous year. Profit decline due to increase in bulk prices ex-refinery and oil fields without compensating increase in sale price, both of which are controlled by Government.

The company manufactured 293,000 gas meters of G-4 and G-1.6 categories in 1998-99 as compared to 231,800 meters manufactured in the previous year. A total of 114,400 meters were issued for own consumption (1997-98: 109,500) and meters sold to Sui Northern and others numbered 176,000 earning a profit before tax of Rs.97 million in 1998-99 as compared to Rs.53 million for the previous year.

Privatization Process

The Privatization Commission has constituted a co-ordination committee for expanding the privatization of Oil and Gas Sector. This committee, decided to privatize and sells off the LPG and meter business of SSGC in the first phase of its privatization process.

New Gas Supply Sources

The prospects of new and increased gas supply sources are getting better. This will ensure continued availability of gas to the company and to end users for the long term in increased volume. The company has already signed Gas Sales and Purchase Contract with OMV (Pakistan) and Joint Venture partners for purchase of 87 MMCFD gas Ex-Miano Gas field. The gas will be available at Kandanwari Gas field takes off point in 2.1 months after the Government signs the agreement and conditions precedent are met. The company is progressing gas purchase contracts for supply of about 300 MMCFD gas from the newly discovered fields of Zamzama, Bhit, Savan, Hassan and Zargoon. Under an interim agreement signed with the Badin Joint Venture, the company has already started receiving extra volumes of 50 MMCFD gas from the Badin II concession fields and another 14 MMCFD is being received from OGDCs Daru Gas field.