Cement, Fertilizer and Chemical Industries to Suffer With Govt’s Huge Gas Price Bomb

Besides added pressure on the common man, the earnings of listed companies representing the textile, cement, fertilizer, and chemical sectors will be impacted as a result of the government’s latest gas rate hike to woo the International Monetary Fund (IMF).

Overall, the increase in gas tariffs will help bridge revenue shortfall for the gas utility companies for the current year as Pakistan last increased gas prices on February 15, 2023, for domestic gas consumers and industries effective from January 01, 2023, said Topline Securities in a report.

In a much-awaited development, the Economic Coordination Committee (ECC) of the cabinet approved a weighted average gas price hike of 70-75 percent for domestic gas consumers and industries. The increase in gas prices will now be effective from November 01, 2023, instead of the proposed date of October 01, 2023.

Further, a fixed rate of Rs. 400/month (earlier Rs. 10/month) from protected consumers and Rs. 1,000/month (earlier Rs. 460/month) for up to 1.5 hm3 from non-protected consumers. Additionally, Rs. 2,000/month (previously Rs. 460/month) will be charged for consumption ranging from 2 hm3 to above 4 hm3 for non-protected consumers. These charges will be collected in addition to the increase in gas prices.

The increase in gas tariffs will help bridge the revenue shortfall for the gas companies by around Rs. 395 billion. This is necessary to increase prices as gas circular debt has now reached Rs. 2.1 trillion and is increasing at the rate of Rs. 350-400 billion per year as per the energy minister.

The IMF has also been a key proponent of reducing circular debt by increasing gas tariffs as it is increasing a huge burden on the government’s fiscal account. This, along with the rationalization of power tariff, will take Pakistan to reach staff level agreement for the upcoming November review, said the report.

ECC’s decision is likely to be approved by the Federal Cabinet which will later be notified by the Oil and Gas Regulatory Authority (OGRA).

As per CPI calculation methodology, PBS uses the weighted average gas prices for consumers to calculate the impact on CPI. Hence, with a 1 percent weight in the CPI basket, CPI inflation could be impacted in the range of 70-75 basis points, added the report.

Implications for Listed Sectors

Sui Companies

For Sui Companies, the increase in gas tariffs will reduce gas tariff differentials for SSGC and SNGP which will be cash flow positive for the companies. The combined revenues of both Sui companies were around Rs. 1.6 trillion which will improve substantially following this gas price increase as the tariff differential reduces. This will also result in lower short-term borrowings for Sui companies.

The Topline report sees some increase in UFG (unaccounted-for gas) losses due to higher gas prices strict compliance as seen recently can curtail losses.


For the EandP sector, the hike will be cash flow positive for exploration companies including Oil and Gas Development Company (OGDC) and Pakistan Petroleum (PPL) as gas circular debt reduces. ECC has also proposed an increase in gas prices for MARI consumers including Fertilizers which will be positive for the company.

Oil Marketing Companies

OMCs will benefit, according to the report. Pakistan State Oil (PSO) has been the worst affected company by the Gas Circular Debt crisis visible from growing receivables of SNGP which reached Rs. 298 billion in FY23 vs. Rs. 226 billion in FY22. The gas price hike is likely to improve SNGP’s revenue stream and help to pay its debts. Thus, it will be beneficial for PSO’s cash flows and working capital needs.


For the fertilizer sector, the impact is expected to be nominal. ECC approved a gas price hike of 14 percent on feed and 5 percent on fuel for fertilizer plants. As per the report, FFC would need to raise the urea price by Rs. 480/bag as the company is booking feed cost at Rs. 302/MMBtu and fuel cost at Rs. 1,023/MMBtu. Moreover, FFBL would need to increase urea price by Rs. 102/bag.

However, EFERT would likely lift urea price by Rs. 72/bag as the company is already receiving ~30 percent of its gas as per PP12 policy. Due to an over 50 percent discount to international urea prices, the fertilizer sector is well placed to pass on any impact of higher gas cost to end consumers, hence no major impact on profitability.


For the textile sector universe under Topline research (ILP and NML), there will be a neutral impact of the recent hike in natural gas prices as both north players are currently using RLNG at US$ 9.0/MMBtu which is higher than natural gas of US$7/MMBtu. However rise in gas prices will negatively affect south-based textile players, such as GATM, as these players use gas as their fuel for captive power generation.


International Steels (ISL) have a minimal earnings impact due to a lower power requirement of 110/kWh for one ton of CRC. As per the report, the hike in gas price will have a bottom-line impact of around Rs. 0.44/share (4 percent of FY24 EPS) as the company relies on gas captive generation.


The hike in gas prices will have an impact of around Rs. 4.6/share (2.5 percent of FY24 EPS) on LUCK as it is the only company in Topline’s cement universe that is using natural gas for its captive plants. Other North-based players excluding CHCC are already on RLNG at a higher rate.


The chemical sector is also likely to be significantly impacted as gas prices constitute a major part of the company’s total cost and impact is unlikely to be passed on to final consumers. Topline estimates EPCL to have a negative impact of Rs. 3.6/share or 45 percent of earnings on a 117 percent increase in gas prices from Rs. 1,200/MMBtu to Rs. 2,600/MMBtu.

Independent Power Producers

The hike in gas price is a pass-through component of the tariff for IPPs through the Energy Purchase Price (EPP) portion, hence no impact on earnings.

Source: Pro Pakistani