Oct. 15 (Bloomberg) -- Sui Southern Gas Co., Pakistan’s second largest distributor of the fuel, plans to spend $270 million to repair pipelines and curb losses after damage caused by the nation’s deadliest floods, its managing director said.
“The World Bank may approve a loan of almost $200 million dollars by December this year,” Faizullah Abbasi said in an interview at his Karachi office yesterday. “We will also spend another six billion rupees ($70 million) to curtail our losses.”
Pakistan’s gas distributors are guaranteed a fixed return according to a government formula. Sui Southern earns a 17 percent return on its assets, which include its pipeline network and compressor stations.
The floods first struck the southwestern province of Baluchistan on July 22 before inundating Khyber Pakhtunkhwa, Punjab and Sindh, the country’s most populous provinces. The event destroyed Sui infrastructure valued at four billion rupees.
Pakistan gas distribution companies also face a penalty if their gas losses, through theft or because of decrepit pipelines, exceed a threshold. On Sept. 24, the Oil and Gas Regulatory Authority, a government agency responsible for setting tariffs, increased the threshold to 7 percent of total gas purchased from 5.5 percent, reducing the company’s penalties.
“We lose 10 billion rupees annually because of our losses of 35,000 cubic feet a day,” Abbasi said. “Our aim is to bring these losses to zero in five years, and then invest in our own infrastructure. That way we won’t be dependent on bank loans anymore, and that is our aim.”
Sui Southern provided 1.1 billion cubic feet a day of gas to its 2.2 million customers in Sindh and Baluchistan provinces in the year ended June 30, 2009, according to Abbasi. Its biggest users are power producers and fertilizer makers.
Pakistan’s natural gas reserves were estimated at 28.9 trillion cubic feet as of Dec. 31, according to the government’s 2009 Energy Year Book. Natural gas accounted for 44 percent of Pakistan’s energy consumption mix in the year ended June 30, the biggest share.
Sui Southern’s net income rose to 4.39 billion rupees in the year ended June 30, from 257.5 million rupees a year earlier. Its shares, which have more than doubled this year, fell 2 percent to 28.85 rupees on the Karachi Stock Exchange yesterday.
A $1.25 billion Iran-Pakistan gas pipeline is targeted to be completed by 2013, providing fuel that will help ease a shortfall. Pakistani companies supply 3.2 billion cubic feet per day, against demand of 3.8 billion cubic feet.
“The company still needs to hold its breath and pray the government succeeds in implementing the Iran gas pipeline deal,” said Abdul Azeem, an analyst at Invest Capital and Securities. “Pakistan is said to receive 2.5 billion cubic feet of gas through this deal, which will re-energize the country.”
Abbasi said demand for gas is increasing as much as 10 percent a year, while supplies remain stagnant.
“The demand and supply deficit may increase to two billion cubic feet a day in the next two years, if new reserves are not tapped,” he said.
The government is setting up plants to produce Synthetic Net Gas, a kind of natural gas made by mixing liquefied petroleum gas and air, in Sindh and Baluchistan with an initial investment of $1.5 billion, he said. These plants will generate 100 million cubic feet of gas a day and may be ready by December 2011.
A program that covers the import of $2 billion of liquefied natural gas and the construction of a $250 million floating terminal will begin by 2014, after it was initially set to start in 2011.
“We were hit by litigation when we had announced the program in 2007,” Abbasi said. “Now the matter has been settled, but we still need the government’s formal approval in its next finance meeting, and that will take time.”
Sui Southern, 60 percent owned by the government, is owed 43 billion rupees in delayed payments from power producers. Accumulated delayed payments between the country’s fuel suppliers, oil refiners, gas distributors and electricity producers amount to some 500 billion rupees.
The Karachi Electric Supply Co., which supplies power to Pakistan’s biggest city, owes the gas company 21 billion rupees, according to a newspaper advertisement on Oct. 4.
Sui’s 3,200-kilometer (1,990 mile) transmission network extends from Sui in Baluchistan to Karachi in Sindh, according to the company’s website.
To contact the reporter on this story: Khurrum Anis in Karachi, Pakistan at kkhan14bloomberg.net
To contact the editor responsible for this story: Amit Prakash in Singapore at firstname.lastname@example.org