In a positive development, the Oil and Gas Regulatory Authority (OGRA) has approved 88% of the requested finance cost for FY23 in the Motion for Review of the Final Revenue Requirement filed by Sui Northern Gas Pipeline Limited (SNGPL).
SNGPL had sought an allowance of Rs. 9.7 billion in finance costs as a pass-through, and OGRA has approved Rs. 8.5 billion.
Previously, OGRA had deferred the decision on the finance cost pass-through for FY23 pending the submission of an independent auditor’s certificate. Following the submission of the certificate, OGRA allowed the adjustment based on the understanding communicated on March 15, 2023. As per this directive, the finance cost is permitted as a pass-through to cover the outstanding differential amounts related to RLNG diversion, RLNG sales at subsidized rates (for fertilizer and export-oriented sectors), and receivables tied up in the power sector’s circular debt, subject to independent audit certification.
READ MORE: NEPRA Exempts Foreign-Funded Renewable Projects
Implications for FY25 Accounts
On December 17, 2024, OGRA had already approved 50% of the finance cost as a pass-through for SNGPL in the review of the Estimated Revenue Requirement.
Assuming the current precedent of 88% finance cost approval continues, earnings estimates for FY25 are projected to rise significantly to Rs. 26.5 per share, implying an FY25E price-to-earnings (PE) ratio of 3.9x.
Why Finance Costs May Be Allowed in FY25
According to the above directives, finance costs can be considered as pass-through if they are incurred to address circular debt-related shortfalls or differential costs arising from RLNG diversion and subsidies.
As of June 2024, SNGPL’s revenue shortfall stands at Rs. 589 billion, and the company has requested OGRA to allow financing for borrowings of Rs. 150 billion. Of this amount, Rs. 40 billion was borrowed on the directions of the Ministry of Energy for onward payments to PSO.
Until a significant portion of this shortfall is addressed, OGRA may continue allowing a substantial portion of the finance cost to pass through.
