Corporate results : Circular debt haunts energy sector firms

Companies witness a slowdown in performance due to cash constraints.

Faseeh Mangi April 20, 2011

KARACHI: Shell profit jumps 88%

Shell Pakistan’s net profit rose 88 per cent during January to March on the back of better oil prices and improved performance of export business.

Net profit stood at Rs758 million for the quarter ended March 31, against Rs402 million posted in the same period last year, according to a notice sent to the Karachi Stock Exchange on Wednesday.

Government receivables are now crossing Rs6 billion and causing a huge financial strain, said the chairman, while talking about circular debt in the result review. Since the emergence of this debt, the second largest oil marketing company has had to pay more than Rs3 billion as interest.

Net sales rose 35 per cent to Rs65.6 billion during January to March compared with the preceding year’s Rs48.5 billion. Sales were backed by a 24 per cent increase in sales volume of petroleum products and a 32 per cent jump in Arab light crude oil prices, according to BMA Capital.

The chairman attributed low regulated margins, delay in government refund of indirect taxes and price differential claims as hurdles in further growth of the company.

Margins for petrol and diesel are now one of the lowest in the region, said the chairman. They have been reduced by the government in recent times when oil prices and costs have been increasing, he added.

Distribution and marketing expense jumped 72 per cent to Rs1.17 billion, while administrative expense fell 16 per cent to Rs891 million.

KAPCO profit surges 41% despite fall in sales

Profits of Kot Addu Power Company (Kapco), the largest independent power producer in the country, rose 41 per cent to Rs5.25 billion in the first nine months of fiscal 2011 as other income surged while sales fell.

Other income charged up 176 per cent to Rs6.38 billion on the back of higher mark-up charged on delayed payments from the Water and Power Development Authority (Wapda). The interest account for Kapco turned positive in the first quarter of 2011 as receivables from Wapda were expected to have touched Rs54 billion.

This more than covered the cost of short-term borrowings acquired by the company to manage uneven cash flows due to the circular debt, said JS Global Capital analyst Umer Ayaz. Total financial charges for the company soared 78 per cent to Rs6.29 billion from the preceding year’s Rs3.54 billion.

Reliance shifts to expensive fuel oil

Owing to unavailability of natural gas, the company had to rely on fuel oil which increased per unit cost of electricity. Since, preference is given to economical sources of electricity by the Pakistan Electric Power Company and Wapda, electricity purchase from Kapco became less viable. Thus, the plant was expected to have operated at an average load factor of 44 per cent during January to March, according to BMA Capital.

Hence, net sales fell 35 per cent to Rs48.5 billion during the period under review against Rs65.6 billion in the same period last year.

Published in The Express Tribune, April 21st, 2011.


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