Islamabad, Dec 25: In a positive development for the energy sector, the Oil and Gas Regulatory Authority (OGRA) has approved 88 percent of the requested finance cost for the fiscal year 2023 in response to a review motion filed by Sui Northern Gas Pipeline Limited (SNGPL). The company had initially requested an allowance of Rs. 9.7 billion in finance cost, but OGRA granted Rs. 8.5 billion.
This approval comes after OGRA had previously suspended the finance cost pass-through for FY23 until SNGPL provided an independent auditor’s certificate. The regulator has now allowed the finance cost following the submission of the required certificate, aligning with directives issued on March 15, 2023.
According to these directives, finance costs related to outstanding amounts from RLNG diversion, sales at subsidized rates (for sectors like fertilizer and exports), and receivables from the power sector as part of the circular debt are eligible for pass-through.
This approval has positive implications for SNGPL’s financial outlook, particularly for FY25. According to Topline Securities, if similar allowances continue, the company’s earnings estimates for FY25 could rise to Rs. 26.5 per share, resulting in an FY25E PE ratio of 3.9x.
The rationale for allowing finance costs as pass-through is based on the fact that these costs are incurred to service circular debt-related shortfalls or to address the differential costs from RLNG diversion and subsidies. As of June 2024, SNGPL’s revenue shortfall stands at Rs. 589 billion, with the company requesting approval for Rs.
150 billion in borrowings, of which Rs. 40 billion was borrowed under the Ministry of Energy’s directions for onward payment to PSO. Given the ongoing shortfall and the need to clear these financial burdens, OGRA is likely to continue allowing a significant portion of SNGPL’s finance costs to pass through in the coming years.
