ISLAMABAD: The Oil and Gas Regulatory Authority (OGRA), has made a decision that greatly encourages Sui Northern Gas Pipeline Limited (SNGPL). Permitting pass-through of 88% of only requested FY23 finance cost has become a huge milestone.
SNGPL had asked that the FY23 finance cost be allowed as pass-through be Rs. 9.7 billion, but finally allowed Rs. 8.5 billion by OGRA speaks volumes. Even so, OGRA had earlier put a stay on allowing SNGPL a pass-through on finance costs during FY23 until SNGPL presented an independent auditor certificate for FY23.
Now that the Independent Auditor’s certificate has been submitted, after due correspondence between the authorities according to the March 15, 2023, directives, OGRA has allowed 88% of finance cost to be passed on.
This means that finance costs will be allowed to the company against the outstanding differential amount against RLNG diversion, RLNG sales at a subsidized rate, and receivable stuck up from the Power sector as part of circular debt, subject to the provision of an independent audit certificate.
The impact is highly significant in relation to SNGPL for FY25 accounts. To recap, OGRA had already allowed 50% finance cost pass-through to SNGPL on December 17, 2024, in the review of the Estimated Revenue Requirement.
Now with this development, let us say, if he allows 88% of the finance cost as pass-through, then the estimates for FY25 would be Rs. 26.5/share, representing a PE of 3.9 times in FY25E.
It’s also worth noting that finance cost can be allowed as a pass-through if the said financing is raised or being used to service circular debt-related shortfall or to pay for differential rising from RLNG diversion/subsidy. As of June 2024, the revenue shortfall of SNGPL stands at Rs. 589 billion, while SNGPL has requested to allow finance for borrowings of Rs. 150 billion.
Out of this, Rs. 40 billion was borrowed in line with Ministry of Energy directions for onward payment to PSO. Until the clearance of a major portion of this shortfall, OGRA may allow a sizeable portion of finance cost to pass through.
Overall, this decision by OGRA is a positive development for SNGPL, and it’s going to have a significant impact on their financials. With the allowance of 88% of the finance cost as pass-through, SNGPL’s earnings estimates for FY25 are expected to increase, which is great news for the company and its stakeholders.
