EUR 25.00 For Business Accounts Only

Pakistan Gas Marketing: OGRA sets new RLNG price below US$6.5/mmbtu; Positive for Gas Utilities

• In a key development, OGRA has cut RLNG prices in Pakistan by US$1.4/mmbtu to US$6.1-6.3/ mmbtu for Jun-2020. This is line with our report titled ‘Fall in oil prices likely to provide liquidity space to Gas Utilities’ dated May 06, 2020.
• To highlight, RLNG prices in Pakistan are set using past three months’ average of Brent crude oil prices. 
• We reiterate this development as a positive for (1) both Sui Companies (SNGP, SSGC) and (2) Pak Economy, as the formers will benefit through improved cash flows and the latter through improved fiscal space.
• The government had allocated fixed rate of US$6.5/mmbtu RLNG supply to the Textile sector compared 12-month average rate of US$10.1/mmbtu), the differential of which was being pricked up by the government itself.
• Currently, Sui companies have receivables of ~Rs20bn against the government under this head. Elimination/reduction of this differential will ease cash flow concerns of Sui companies.
• The government will benefit from this through greater fiscal space as annual subsidy under this head hovers around Rs35-40bn per annum, which will now reduce substantially for FY21, given the oil prices continue to hover around these levels.
• Additionally, SSGC has submitted revised ERR for FY21 (published on May 28, 2020) after adjusting downward its oil price assumption to US$42.6/bbl for FY21 from US$64/bbl, which resulted in decline in its Revenue Requirement by Rs19bn.

Similarly, SNGP has also revised down its Revenue Requirement by Rs15bn. Together, Sui Companies have lowered their Revenue Requirements by Rs35bn (or Rs52/mmbtu; oil assumption at US$42/barrel), inline with our estimate of Rs50bn if oil price averages around US$35/bbl.