EPCL enters into interim agreement with SSGC for gas supply

Engro Polymer and Chemicals Limited (EPCL), a subsidiary of Engro Corporation Limited, has entered into an interim agreement with Sui Southern Gas Company Limited (SSGCL) for the supply of gas till 28 February 2023.

The company shared the development in its notice to the Pakistan Stock Exchange (PSX) on Tuesday.

EPCL informed that the agreement would be “based on industrial/commercial pricing for RLNG (Re-gasified Liquid Natural Gas), as notified by the Oil and Gas Regulatory Authority (OGRA) from time to time, on an as and when available basis”.

“Currently, EPCL is being charged PKR 1,087/mmbtu while the current (Nov 22) rate of RLNG notified by OGRA is USD 14.81/mmbu (PKR 3,318/mmbtu),” Rao Aamir Ali, Assistant Vice President - Research at Arif Habib Limited (AHL) said in a note.

Ali said that in order to manage the expected gas shortage in the winter season, the company has already planned an annual turnaround during the upcoming month (December 2022) for 30 days.

“Normally, the company holds one month's inventory (15-20K tons),” read the note.

Meanwhile, AHL shared that on the basis of the aforementioned development, “we have calculated the potential financial impact on EPCL. As per our calculations, the company will have to increase PVC prices by $285/ton to fully pas on the impact of higher gas prices.

“However, due to lower international PVC prices, we assume EPCL will only pass on half of the impact of higher gas prices, translating to a negative earnings impact of Rs0.91/share (assuming 40,000 tons of PVC production during the RLNG pricing period).

“Albeit, if the company absorbs the full impact of higher gas prices, the profitability will decline by PKR 1.82/share,” added the note.

The development comes as industrialists expressed concern that the expected gas supply crisis during the winter months would badly affect industrial production, exports and halt all economic activities and lead to massive layoffs.