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Pakistan Strategy: ECC okays gas price hike; Sui companies beneficiaries

• The Economic Coordination Committee (ECC) of the federal cabinet has decided to increase gas rates by up to 14% (as per news reports).
• This decision will now be ratified through federal cabinet.
• Along with this, meter rentals for domestic consumers have also been proposed to increase from Rs20 to Rs40 per month.
• Meter rental is part of operating revenues for Sui Companies, so essentially this should not increase their profitability.
• However, due to increase in collection of meter rentals (current collection approx.: Rs2bn) revenue requirement of Sui companies can come down marginally, going forward.
• Increase in gas prices despite OGRA’s proposal to cut it down by 2-6% is a step in the right direction, in our view.
• It will help result in curtailing/containing surging natural gas sector circular debt, which has already crossed Rs200bn in case of Sui North (SNGP).
• News reports suggest, average increase of Rs50/mmbtu. Sui companies together are selling almost 760,000 mmcf. This development should improve Sui companies recovery by Rs36bn per year, as per our estimates. 
• In a consensus decision, increase in gas price was limited to 33% of GIDC amount, which is no more applicable from Aug 01, 2020.
• Impact of Petroleum Ministry proposed gas price hike: The sector wise gas price hike is not available. However, if we consider Petroleum Ministry proposal as base case, Urea price per bag can witness increase of Rs65/bag as feed gas price is expected to increase by 14.8% and fuel gas price is expected to go up by 4.4%.
• If this is completely passed on to consumers, then EFERT (Rs0.15 per share) and FATIMA would be beneficiaries as both receive fixed concessionary gas rate.
• Gas price hike for cement companies and captives is proposed at be increased by 3.9% and 12.3%, respectively. Similarly for textiles hike is proposed in range of 5.6-15.2%.