OGRA Approves SNGPL Request for Rs. 8.5 Billion in Recoverable Finance Costs

In a positive development, the Oil and Gas Regulatory Authority (OGRA) has allowed 88 percent of the requested finance cost of FY23 to pass through in Motion for review of the Final Revenue Requirement filed by Sui Northern Gas Pipeline Limited (SNGPL).

SNGPL requested an allowance of Rs. 9.7 billion finance cost as pass-through, while OGRA has allowed Rs. 8.5 billion.

To highlight, previously OGRA pend the finance cost as pass-through in FY23 till the provision of an independent auditor certificate for FY23.

Topline said on Tuesday that OGRA has now allowed 88 percent of finance cost after SNGPL submitted an Independent Auditor’s certificate and based on the understanding between authorities communicated as per March 15, 2023 directives, that finance cost will be allowed to the company to the extent of outstanding differential amount against RLNG diversion, RLNG sales at a subsidized rate (fertilizer, export-oriented) and receivable stuck up from the power sector as part of circular debt subject to provision of independent audit certificate.

Implication for FY25 Accounts

To highlight, on Dec 17, 2024, OGRA already allowed 50 percent finance cost as a pass-through for SNGPL in the review of the Estimated Revenue Requirement.

If it is now assumed that 88 percent of the finance cost as pass-through after this development/precedent, the earnings estimates for FY25 will jump to Rs. 26.5/share, this translates into FY25E PE of 3.9x.

Why Finance Cost Will be Allowed in FY25

Based on the above directives, finance cost can be allowed as a pass-through if the said financing is raised/or being used to service circular debt-related shortfall or to pay for differential rising from RLNG diversion/subsidy.

As of Jun 2024, the revenue shortfall of SNGPL stands at Rs. 589 billion while SNGPL has requested to allow finance for borrowings of Rs. 150 billion. Out of this, SNGPL has further mentioned that Rs. 40 billion of this was borrowed in line with Ministry of Energy directions for onward payment to PSO. Till the clearance of a major portion of this shortfall, OGRA may allow a sizeable portion of finance cost to pass through.