Pakistan Strategy: Removal of GIDC doing rounds; potential impact assessment
- We run earnings sensitivity on impact of potential withdrawal of Gas Infrastructure Development Cess (GIDC) on gas consumers and broader macro implications.
- While similar proposals have been shot down in past couple of years, it appears to have gained more traction this year as potential relief measure for agriculture and industrial sectors from the outgoing govt.
- We assign low likelihood to removal of GIDC on gas consumers, on account of (i) government grappling for resources in efforts towards fiscal consolidation (PKR7bn tax collected in 1HFY18 but uncollected amount from past years is higher), and (ii) approval of 7% gas price hike already long pending.
- On macro front, we believe withdrawal /reduction in GIDC would serve as a step backwards from fiscal reforms, while putting big question mark on settlement of accrued GIDC payments. Moreover, no material impact is expected on inflation in case of removal of GIDC on CNG, due to its nominal weight in the CPI basket.
- Potential beneficiaries from removal of GIDC include (i) Fertilizers (those using non-concessionary gas prices to gain the most- FFC & FFBL), (ii) Chemicals (19-37% earnings upside), and (iii) selectively positive for Cement and Textile players. We see neutral and marginally positive impact on power and steel sectors respectively.
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