Sui Sou-thern Gas Company (SSGC) has finalised its plan to buy Progas Pakistan Limited, one of the largest LPG infrastructure and marketing companies, well-informed sources in Petroleum Ministry told Business Recorder. Progas is in liquidation and has the assets valued at Rs 6 billion against secured/unsecured liabilities of Rs2 billion.
"We believe there will be considerable interest and the offers may range between Rs2.5-3.5 billion. The replacement value of these assets is estimated to be over Rs10 billion," the sources added.
In accordance with the directions of the Board a subsidiary of SSGC LPG Ltd (SLL) was registered in October 2009. Since then SSGC has been planning to enter into an entire LPG supply chain i.e. extraction, storage, bottling and distribution business. Recently an opportunity to set up and build this business on fast track through the acquisition of assets of an established LPG infrastructure company at a forced sale value manifested itself. These acquired assets shall be held by SSGC LPG Ltd (SLL).
Progas Pakistan Limited is the largest LPG infrastructure and marketing company in Pakistan with its own dedicated import handling terminal at Port Qasim. The assets include a fully functional multipurpose Jetty, Trestle, LPG storage facility (6,750 MT) and downstream logistics and filling plants. The annual terminal capacity is 2 million tons and the terminal can handle up to 15,000 DWT vessels with provisions to handle up to 80,000 DWT vessels for LNG imports at additional cost.
SSGC has obtained stay order on the scheduled auction on the pretext that the inventory of equipment provided by the Court Nazir is not in agreement with the inventory on ground.
Acquisition of Progas assets into SLL through the auction process seems to be the best option in order to avoid conflicts, hidden liabilities and will be totally transparent, sources added. However, SLL will have to obtain licences from OGRA and EPA clearance and negotiate concessions with the Port Qasim Authority.
The annual indigenous LPG production is around 580,000 MT, additionally 109,500 MT is imported. While the local production is expected to remain flat, the imports will rise substantially to 1.8 million MT by 2020, to cater to increased demand, growing at over 8 percent annually.
OGRA has rationalised the pricing structure to allow for a reasonable margin for imported LPG, presently at $150 maximum over the imported LPG landed cost. Moreover, the producers' price is linked to CP Saudi Aramco which has a direct correlation with imported LPG cost.
SLL being in the public sector has aspirations of becoming a major player in the LPG market with focus on meeting the suppressed demand while keeping the prices stable at affordable level in comparison to other available fuels. This can be achieved by maintaining regular supply in the market through imports and giving the price benefit to the consumer based on the weighted average cost of local and imported LPG. This will help set the pace for regulating market prices through market forces instead of interference from OGRA.
At a conservative $90 average net margin per ton for 600 tons LPG supply for 2011/12 financial year, SLL profit from LPG business alone could exceed Rs 1.6 billion.
According to sources, this is a one time opportunity and SSGC maintains it understands the potential and dynamics of this lucrative business and urges the government to capitalise on this opportunity.
SSGC has already set-up three LPG air mix systems of 2 mmcfd capacity each, and plans to install four SNG plants (40 mmcfd each) by 2011-12, hence the company alone will consume around 100 tons per day
Source: Business Recorder
