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Pakistan Market: GIDC Ordinance Issued

• In a much awaited development, the Govt. has issued ordinance of Gas Infrastructure Development Cess (GIDC), wherein the Govt. has waived 50% of outstanding amount for fertilizer sector, captive power plants, KESC/GENCOs, and IPPs sector.
• History of GIDC can be traced back to 2011 when the Govt. imposed additional Cess on natural gas consumers (other than domestic consumers) for infrastructure development of gas sector.
• All fertilizer manufacturers are accruing GIDC amount on fuel. On Feed, FFC and FFBL are accruing GIDC on full production, while EFERT is accruing it only base plant (~35% of its total production).
• Among other companies, LOTCHEM, GATM, FML, EPCL, BGL, MLCF, and CEPB are also accruing GIDC. These will be beneficiaries now after this 50% waiver scheme.
• One good thing about this ordinance is that, the beneficiary companies can adjust their GIDC payable amounts with outstanding amount of subsidies and sales tax.
• Once this development (50% reduction in outstanding amount and recurring GIDC rates) materializes than FFC will have highest gain of Rs11.6/share followed by FFBL (Rs6.2/share), EFERT (Rs3.3/share) and FATIMA (Rs0.9/share).
• For zero rated sector, the Govt. has removed GIDC which will be materially positive for FML, GATM and LOTCHEM. The recurring earnings impact on these companies will be Rs0.7, Rs1.2 and Rs0.2 per share, respectively.
• We expect fertilizer companies may announce onetime cash dividend as EFERT, FFBL and FFC are sitting at cash balance of Rs7-54bn as of Jun 2019.
• Similarly, for Captive power plants outstanding amount if reduced by 50%, the impact on companies is mentioned below. However, its still unclear whether captive power plants will get recurring benefit or not.