Engro Elengy Terminal Limited (EETL) and Sui Southern Gas Company (SSGC), In a recent development, have successfully entered into an arrangement allowing EETL to utilise its spare capacity of 200mmscfd, enabling it to handle 600mmcfd LNG at an average tolling fee of $0.479/mmbtu.
In this regard, the analyst of AKD brokerage house said, “Long-term Sale Purchase Agreement (LSA) amendment is in the process and is expected to be finalised shortly.” In March 2016, the company had entered into a 2-year contract with SSGC, whereby it was supposed to supply 400mmcfd at an average tolling fee of $0.66/mmbtu.
However, for utilisation of available 200mmcfd, both the entities have reached a revised agreement under which the average tolling charges will come down to $0.479/mmbtu for 600mmcfd against the current $0.66/mmbtu for 400mmcfd LNG supply.
In this backdrop, at 100 per cent utilisation of handling capacity, net margin for LNG operations works out to 20 per cent (down 0.4ppt earlier) despite 27.4 per cent downward revision in tariff, courtesy better utilisation of fixed and other operating costs at full capacity.
Consequently, annual earnings estimates for ENGRO from Elengy operations go up by Rs 0.22 per share to Rs 3.53 per share, considering 80 per cent stake in EETL. However, due to equity disbursement by IFC, ENGRO shareholding in EETL was reduced to 80 per cent (vs. 100 per cent ownership) from the 2nd half of 2016.
With the country is experiencing a gas shortfall of around 18-20bcf, Pakistan is forging ahead with alternatives, fast-tracking new LNG gas imports to minimise the shortfall. In this regard, the government of Pakistan has recently awarded two LNG supply tenders, where Italy’s Eni won a 15-year contract while Swiss trading outfit Gunvor secured a 5-year deal at 12.29 per cent and 11.62 per cent of the Brent /MMBtu of LNG respectively.
Moreover, for handling the increased LNG supply, GoP has also gone ahead with LNG terminal-2 (EETL being the first one) to be set up by Pakistan Gas Port Limited (expected to come online from July 2017) which will handle 600mmcfd of LNG at a levelled service charge of $0.417/mmbtu.
The analyst of AKD securities said that the setting up of another LNG terminal cannot be ruled out on investment perspective as the company had already made a big investment in first LNG terminal.
With cash in hand at Rs 48 billion, this also makes sense allowing the company to leverage on the infrastructure setup already in place, he added. The stock has gained considerable 19 per cent in the current year to date on anticipation of the special dividend.
