EUR 10.00 For Business Accounts Only

Pakistan Market: GIDC Resolution - EPCL, LOTCHEM, GATM, FML to benefit the most

• Listed companies (excluding Fertilizer Sector - please see ‘Pakistan Fertilizer - GIDC Resolution on Cards; FFC to benefit the most’ dated Jan 11, 2019) that are accruing GIDC are Lotte Chemicals (LOTCHEM), Engro Polymers and Chemicals (EPCL), Feroze1888 Mills (FML), Gul Ahmed Textile Mills (GATM) Maple Leaf Cement (MLCF), Baluchistan Glass (BGL), among others. Out of these, EPCL, LOTCHEM, GATM, and FML would be the key beneficiaries as per our expectations.
• Some companies are not accruing this Cess amount in their financial statements like Tariq Glass (TGL), Azgard9 Limited (ANL) and Hira Textile (HIRAT) amounting to Rs600-700mn (estimated), Rs146mn and Rs74mn respectively. For these companies, their earnings will be negatively impacted as these will have to book the GIDC amount.
• Gas Infrastructure Development Cess (GIDC) was imposed by Govt. back in Dec 2011 to raise funds for development of gas infrastructure in country. GIDC Act provides legal framework which allows Govt. to levy and collect the Cess from gas consumers other than domestic sector consumers. According to Act, the collected amount shall be utilized by Federal Govt. for Iran Pakistan (IP) gas pipeline, Turkmenistan-Afghanistan-Pakistan-India (TAPI), LNG and other ancillary projects.
• The authorized billing companies for this Cess are Sui North Gas Pipeline (SNGP), Sui Southern Gas Pipeline (SSGC), Mari Petroleum (MARI), Pakistan Petroleum (PPL), Oil and Gas Development Company (OGDC) and Tullow Pakistan.
• Rates of this Cess/mmbtu varies industry wise, where Fertilizer is required to pay Rs300/mmbtu for feed gas and Rs150/mmbtu for fuel gas which increases urea manufacturers cost by Rs400/bag. While Industries and Captives are required to pay Rs100 and Rs200 per mmbtu respectively.
• In last five years Govt. missed its actual collection target of GIDC by average of 56% as Sindh High Court (SHC) in its verdict concluded that GIDC ultra vires the constitution. Currently, this case is pending in Supreme Court (SC).
• Last year in 2018, through an amendment to GIDC act, the Govt. notified to collect 50% of the Cess  levied  or charged from Jan 2012 to May 2015 in two tranches for the Compressed Natural Gas (CNG) sector. As per that notification, All Pakistan CNG Association agreed to pay due amount of Rs12bn. To note, this amendment was presented in Parliament and Senate both for approval.
• Recently, possible resolution of this long pending issue is doing rounds for last few days, which can result in similar resolution that was prescribed for CNG stations. Fertilizer industry have also met with Govt. officials on this issue, as per our channel checks.
• While other industries like Chemicals and Sindh based Textiles have not been approached yet by the Govt. bodies.  However, as per media reports, Govt. has asked for out of the court settlement Punjab based Textile with offer of waiver in Late Payment Surcharge (LPS) on outstanding amount of GIDC at mark up of KIBOR+4%. To note, in fertilizer case our channel checks suggests 50% waiver in outstanding amount. We cannot rule out amendment in GIDC act for its resolution in upcoming Mini Budget on Jan 23, 2019 as last time it was approved by both Parliament and Senate.