Government of Pakistan is considering an increase in the gas tariffs to compensate for the grave losses suffered by the Sui Northern Gas Pipelines (SNGPL) recent months, reports from Islamabad confirmed Saturday.

For the first time in company’s history, Sui Gas has registered substantial losses. It is estimated that in past six months the government owned and operated firm has gone Rs244 million in red.
Recently gas tariff to the consumer was increased by 18 percent but SNGPL finds market conditions unfavorable even after the price hike.

Shareholders have been informed that they will receive no dividends at the end of this fiscal year and they may suffer a loss of Rs0.44 per share of Rs10.

When asked for guidance, Chairman of SNGPL board of governors, Mian Misbahur Rehman said, “I have taken over only three days ago and at the moment I cannot comment on it.”

Another official on the condition of anonymity said: “it is virtual bankruptcy. The situation, by all means, is precarious for the company.”

Consumers are not the only victims: besides increasing gas tariffs, SNGPL employees are also being paid on time. For the last few months the company is not appropriately disbursing travel and medical allowances.

There are rumors that the provident fund of the employees may also be invested in the company’s assets.

During the period of last six months gap between the company’s receivables and its payables have grown rapidly.

SNGPL has receivables of Rs15.06 billion from the federal government and Wapda and payables are about Rs40.44 billion to the Oil and Gas Development Corporation, Pakistan Petroleum and Government Holdings.

Unlike HABCO and KAPCO where inter-corporate debt adjustment was a way out of the crisis, for SNGPL that cannot be a solution because its net payables are Rs25.38 billion making a negative of Rs9.51 billion between the company’s assets and liabilities.

SNGPL’s long-term liabilities went up from Rs53.8 billion to Rs55.67 billion and its liabilities increased from Rs52.56 billion to Rs57.58 billion.

The situation will be further compounded if the Oil and Gas Regulatory Authority decides to impose a fine for failing to meet the line losses standards.

Power crisis in Pakistan will worsen starting next month as the sate-owned Pakistan State Oil PSO appears ready to disconnect fuel supplies to the Hub Power Company, Kot Addu Thermal Power Company and Pakistan International Airlines for non-payment.

PSO had already slowed down the supply of oil to these companies and has warned that it completely shut down supply if payment was not made immediately.

In a letter to Hub Power Company (HUBCO) and Kot Addu Thermal Power Company (KAPCO), PSO has threatened the suspension of oil supply in case both failed to pay at least Rs 20 billion out of the total dues of Rs 57 billion. The letter says PSO will not be held responsible for the consequences arising from the discontinuation of supplies.

These receivables have now crossed Rs.103 billion and power sector companies owe over Rs.93, including Rs38.7 billion from Pakistan Electric Power Company, Rs35.5 billion from Hubco and Rs18.7 billion from Kapco.

Finance ministry officials are of the opinion that this debt is still manageable as PSO’s payables have also increased up to about Rs68.5 billion on February 23. Reportedly these include Rs35.3 billion due to Parco, Rs14 billion to Pakistan Refinery Limited, Rs15 billion to Attock Oil, Rs8.7 billion to National Refinery and Rs5 billion to Bosicor Refinery.

Finance ministry officials Wednesday said, “cash flows of power companies will improve as a result of tariff increase. However, receivables of some companies had increased significantly and outgoing finance minister Shaukat Tarin would preside over a meeting on Saturday to ensure some payments to PSO.”

Earlier this month Finance Minister Shaukat Tarin had said that the appointment of the , federal price adjuster, “will ensure the payment of dues to Pepco from the government departments.”

Rana Asad Ameen has been appointed as price adjuster.

“The government will not let PSO default at any cost and the Finance Ministry is working to release some amount to bail out the firm,” the departing Finance Minister had said.

Analysts argue discontinuance of Oil and fuel supplies to the power plants will not only increase the duration of load shedding but also burden the customers with further increase in power rates.

Trading Corp. of Pakistan had to cancel the tender to import sugar after two of the lowest bidders failed to submit ‘adequate financial’ documents, officials in Islamabad said Monday.

Analysts in New York feel that TCP’s tender process was not ‘above board,’ and they lost an opportunity to import at much better price than local producers can offer.

TCP had received the lowest bid to import 200,000 metric tons of refined sugar at approximately $125 below per ton from an American company. All together TCP had received seven bids for its 200,000 tons of sugar import tender with lowest at $579.90 per ton and the highest at $826 per ton C&F.

TCP officials told us that the lowest offer of $579.90 per ton was from the American Investment Group. This bid is $125 below current market price. Star International had the second lowest bid at $749 per ton for 50,000 ton.

But both, AIG and Start failed to secure bank guarantee. Pakistan requires a total 1.2 million tons to bridge a gap in supplies that has pushed prices to near a record. It plans to import 500,000 tons by June and another 700,000 tons by July.

Earlier, a Dubai based trading firm – Sadan General Trading had won a partial award and has already submitted a bond for $350,000 with the TCP.

Current world sugar range from $706 to $709 per ton Fob, but it is possible that American Investment Group is trying to unload inventory.

Pakistani experts were concerned about low bids from AIG. Chief of TCP was quoted by Dawn saying that AIG must be trying off-load old inventory.

But sugar executives in the US claim that the vast majority of sugar marketed here is sold well below the spot prices commonly reported in the media. They feel that AIG prices offered to TCP were reflective of street price of refined sugar.

Inder Mathur, the CEO of Western Sugar Cooperative says companies in the US sell sugar for an estimated 25-30 percent cheaper than what the USDA reports as average prices.

Most food manufacturers booked this year’s sugar purchases months in advance at lower levels, and few ever pay the asking price, he noted. The same situation occurs in sugarcane-producing regions, too.

Jim Simon, the general manager for the American Sugar Cane League, which represents the Louisiana sugar industry, says producers expect to sell this year’s raw sugar crop for between 23.5 cents and 24 cents per pound.

“This is an improvement from the 20.5 cents seen in previous years, but is certainly not a windfall,” he explained. The publically reported raw price was close to 40 cents per pound last month, and the average price for 2009 was under 25 cents.

The price of sugar, which had been stagnant for more than two decades, has recovered over the past year.

“Prices are still below levels seen in 1985 when they are corrected for inflation,” Mathur told Forum attendees. “And world prices have risen twice as much as domestic.” Sugar shortages around the globe have led to steep price increases worldwide.

He also noted that 23 years of flat prices in America combined with higher input costs have led to contraction and consolidation within the U.S. industry. In fact, 54 sugar mills and refineries have closed since 1985, according to the American Sugar Alliance.

“If the recent price recovery can be sustained,” Mathur concluded, “producers might be able to improve returns over past years, reduce their debt load, re-invest, continue to improve efficiency, and stay in business.”

But despite falling prices in the US market, countries like Pakistan are facing severe sugar crisis. Many blame local producers for the unreasonable hike in sugar prices.

A Dubai based trading firm sold sugar to Pakistan at 18 percent lower than global benchmark but could not supply the entire quantity demanded in the recently issued tender, reports indicate Friday.

Through the government managed Trading Corporation of Pakistan, Islamabad had issued a tender to purchase 200,000 tons of sugar.

But the country purchased 50,000 metric tons of refined sugar at $585 a ton from Sadan General Trading LLC, a Dubai based firm , reports Bloomberg.

The price is 18 percent below the current rate in London, a global benchmark for refined sugar. Sadan was unable to supply more at the contracted prices.

The Trading Corporation of Pakistan on Feb. 11 scrapped a tender to buy 150,000 tons of white sugar after a dispute with the lowest bidder.

Pakistan requires a total 1.2 million tons to bridge a gap in supplies that has pushed prices to near a record. It plans to import 500,000 tons by June and another 700,000 tons by July.

Cotton prices continued to climb Thursday in Pakistan breaking all previous records for better quality crop. On previous day spot rate at the Karachi Cotton Association (KCA) increased by Rs 75 to Rs 4,700, breaking all previous records.

More than 17000 bales of cotton sold within the range of 4600-5500. One contract from Khanpur was executed at Rs 4950 which was the highest in the current season.

Phutti prices in both the Punjab and Sindh were same at Rs 2050-2350, they added. Some cotton analysts said that the mills, which were trying to purchase fine quality, offering high prices to save themselves from future losses.

The basic reason behind the surge in prices is short supply of cotton despite having good crop of cotton during the current season, they said. They said that the country imported one million bales of cotton from neighbouring India, and still it needs to import more than two million bales of cotton to make up the balance, they said.

The emerging circumstances are in favour of ginners, because they are in commanding position, sometime ago, the mills were sidelined as they were anticipating that the ginners will oblige them by lowering prices, instead, they (mills and spinners) were trying to get better quality after paying high rate. On Tuesday the NY cotton futures finished near a four-week high on all-around buying sparked by a bullish government supply/demand report, and some follow-through interest should lift prices this week, brokers said.

The key March cotton contract rose by 3.00-cent limit to end at 72.16 cents per lb, with the session low at 69 cents. It was the highest finish for cotton on the spot daily charts since the middle of January, when it traded near 73 cents. Volume in the March contract hit 21,875 lots at 2:54 pm EST (1954 GMT).

Government of Pakistan awarded a contract to GDF Suez to supply 3.75 million tons per annum of liquefied natural gas (LNG) for a period of 20 years. This is the country’s first gas import project and efforts are still being made to allow Shell to import additional 2.5 million tons during the same period.

The decision was made in the Economic Coordination Committee (ECC) of the cabinet presided over by Finance Minister Shaukat Tarin in Islamabad on Tuesday 09, February 2010 .

By 2011 deadline for the first LNG supplies will be met. The project envisages supply of up to 500 million cubic feet per day of gas. The price of LNG imported from GDF Suez will be $1.8 billon lower than the rates offered by Shell in the first six years, the import price will be around $9.3 per MMBtu said, G A Sabri, senior petroleum ministry official.

“GDF Suez agreed to sell us LNG at a price far less than what Shell was offering. We have held meetings with both the suppliers and selection of GDF Suez won’t result in further delay. A final agreement with a consortium of 4Gas, which will run the LNG import terminal, is expected in few weeks,” said Mr. Sabri.

GDF Suez will start supplying the gas to Pakistan by Oct. 2011 according to the initial six-year contact. . The company may also supply 1.5 million tons of LNG annually for the following 14 years under the contract, G.A Sabri said.

Last month on 14th January 2010, Petroleum Minister, Syed Naveed Qamar, said significant progress had been made to meet oil and gas demand, particularly in the short and medium term, especially through LNG imports. Two proposals were under consideration of the petroleum ministry for LNG imports. The first project was the extension of Mashal project of Sui Southern Gas Company (SSGC), which was a land-based re-gasification unit. The second proposal was from a major European company in the SSGC system by establishing a floating re-gasification unit in Karachi. Mashal LNG project was delayed by the government while Sui Southern Gas Company (SSGC) had started work on the project in 2005 whose completion will ensure supplies of gas, and help the economy.

Even after the announcement by ECC, Shell continues to contest the decision. Before the decision was publicized higher officers of Shell held meetings with Petroleum Minister Syed Naveed Qamar and senior officials of the finance ministry.

Initial statement released by ECC said, “the ECC also decided that Shell’s offer at 15 per cent Brent plus $0.5 per MMBtu, subject to further improvement in the final round of negotiations will be accepted for up to one MTPA medium-term supplies of six years and 2.5 MTPA from the seventh to 20th year.”

The official statement said the ECC also approved a $500 million sovereign guarantee by the finance ministry to cover LNG supplies.

The Finance Minister ordered Finance Secretary, Salman Siddique to issue a revised decision statement after deleting the controversy regarding the acceptance of Shell’s offer and hence, revised statement did not say anything about the Shell offer.

Recent energy falls in Pakistan, as the natural gas reserves have depleted and has caused a great decline in Sui gas field production, LNG is the most appropriate option to meet energy shortfall. Officially gas shortage has reached 25% of the production and power crisis is worsening day by day. These projects are aimed to overcome the power crisis in Pakistan and many more such projects are in pipe line.