Commencing work on Iran-Pakistan gas pipeline

After the withdrawal of sanctions imposed on Iran the way has been cleared for the commencement of construction of Iran-Pakistan gas pipeline (IP). While Iran has already completed its part of the pipeline, Pakistan has yet to begin the work. The pipeline originally included India, which later on backed out due to the US pressure and Pakistan also didn’t go ahead, fearing it may also face economic sanctions.

Three key issues were raised regarding IP: 1) probability of imposition of sanctions, 2) security of pipeline and 3) mobilizing funds for the construction of pipeline. Initially Iran had offered to provide US$250 million loan to Pakistan but the ruling junta didn’t accept it under the pressure of the US.

With the withdrawal of sanctions there remains no hitch except security of pipeline, particularly the portion passing through Baluchistan. If India-Pakistan relationships improve and India also agrees to join the project the threats to pipeline will be minimized. It was often alleged that the militants operating in Baluchistan were supported by anti-Iran and anti-Pakistan elements.

Even since the talk began about import of LNG, I have been the most vocal opponent. This opposition was mainly due to: 1) the pipeline is a symbol of friendship between three countries - Iran, Pakistan, India) enjoy common borders and also have connecting rail and road networks, 2) Pakistan being deprived of huge transit fee, 3) mobilizing capital and 4) delicacies of the technology.

As the entire scenario has changed the outlook and working parameters have also changed. Pakistan could now seek funds from China, Russia and multilateral financial institutions for the construction of the part of pipeline passing through the country.

Despite the most fervent opponent of LNG import, I will still not recommend abandoning LNG project and suggest completing the construction of terminal in Karachi on top priority. However, the project should be constructed by the private sector only without any involvement of the government. This option is another option to boost availability of gas in Pakistan to meet future requirements.

The top beneficiaries of enhanced availability of gas should be industrial units (fertilizer plants and textile units) and not the power plants. Burning gas at power plants is complete waste of this precious resource. Pakistan should also expedite work on hydel power plants, which will also enhance water storage capacities in the country.

Circular debt issue of power sector just can’t e resolved by running power plants on gas. It could only be overcome by containing blatant theft of electricity and recovering all each rupee of the outstanding amount running into billions of rupees.

MOL discovers gas in Pakistan

MOL Pakistan announced on Tuesday that it had made a sizeable gas condensate discovery at Mardan Khel-1 exploratory well in district Hangu of Khyber Pakhtunkhwa.

“This will be a major booster to the exploration activities in the country,” the company said.

Mardan Khel-1, the 12th exploratory well in TAL Block, was spudded on Sept 17, 2014, and reached a total depth at 4,912 metres on Feb 17, 2015.

“During the post-acid test, well flowed 3,440 barrel per day (bpd) of condensate, 40.56 million standard cubic feet per day (mmscfd) gas with 5,822 psi pressure at 40/64 inches fix choke,” the company said.

It was the seventh discovery in the Tal block after Manzalai, Makori, Mamikhel, Maramzai, Makori East and Tolanj oil and gas condensate discoveries since 2002.

Pakistan Stock Market Still Attractive

On Saturday, the U.N. nuclear watchdog announced Tehran had met its commitments to curtail its nuclear program and the U.S. was prompt in revoking the sanctions. These moves were not unexpected and the stock investors were mentally ready for such news.
In Pakistan PSX-100 took a nose dive and lost more than 1,000 point soon after opening of the market. It was much anticipated that with enhanced export of crude oil, its price will erode. Selling in E&P companies was anticipated but the phenomenon was not unique to Pakistan.
In Pakistan the general perception is that foreign fund managers are on selling spree. Prices of scrips in which foreign funds have huge investment (OGDC, PPL and POL) are down but the volume in their shares is still not very high. Bulk of the volume is still being contributed by second and third tier companies.
At the time I am posting this update the market has already recovered nearly half of the lost points. I am of the view that as the day proceeds those feeling jittery will gather the courage. Historically, at such junctures institutional investors step in and buy at bargain price.Therefore, my suggestion to the investors is ‘not to panic’, keep a close watch and enter the market at appropriate time.

Pakistan discovers a tiny gas field

Oil and Gas Development Company (OGDC) has made another gas discovery with initial production of 23.50mmcfd from its exploratory well in Sukkur in Sindh province of Pakistan.

According to the information provided to Pakistan Stock Exchange (PSX) by OGDC the Thal East well #01 was drilled down to the depth of 4,468 meters whereby reserves of hydrocarbon have been found in Basal Sand of Lower Goru Formation.

The details further says one more zone in Lower Goru Formation Sand is available which is yet to be tested and hopefully will add more reserves.

Hi-Tech shares to be offered at Rs62.50 to general public

The book building process of Hi-Tech Lubricants Limited has attracted enormous response and it has been over-subscribed by 2.24 times in the first stage of Initial Public Offering (IPO) of the company, which closed on Friday.
According to the details shares of the company were offered at a base price of Rs37 per share, but due to high demand during the two-day book-building process, the closing strike price touched Rs62.50 per share.
In book building process, only corporate entities and high-net worth individuals can bid for shares. The company was able to raise Rs1.35 billion from the offer, which made available 75% or 21.75 million shares out of the IPO for 29 million shares. Investors had offered bids for 48.674 million shares of the company.
In the next stage of the IPO, the remaining 25% or 7.25 million shares will be offered to general public at the strike price of Rs62.50.
Arif Habib Limited is the lead manager, arranger and book runner for both the IPO segments.
Commenting on the investor response to the book building, Hi-Tech Lubricants Director Shaukat Hassan said, “We are also extremely happy to become the first-ever listed company after the formation of Pakistan Stock Exchange (PSX).”

Saudi-Iranian Standoff a threat to global peace

The recent standoff between Saudi Arabia and Iran is not something new but has deep roots spread over centuries and goes beyond dawn of Islam. In the recent past some of the quarters in the Kingdom have been saying, Iran is an enemy worse than Israel”.

Nathalie Goulet, Deputy Chairman of the Commission of Foreign Affairs and Defense Forces at the French Senate, recently said Saudi Arabia cannot bear Iran returning to international arena and it has planned the recent dispute as a scheme to hamper Iran’s growing international relations.

He says it is a war of economy and seeking the upper hand behind a mask of religion. Behind the religious differences and generations-old grudges that Saudi Arabia and Iran hold against each other, there lies a sense of arrogant rivalry and an economic war as well.

He is of the view that Persian Gulf littoral countries, not least of all Saudi Arabia, never accepted the Iran nuclear deal, regarding which they still preserve their rage against the United States. He is of the view that the Wahhabi king has not only to fight the Islamic, but to prove that fighting the group is a real objective with Riyadh as well, even though the monarch has been accused of funding ISIS.

Therefore, besides several beheading punishments on the onset of the current Christian year, Saudi Arabia needed to make a coalition more powerful than 34 countries.

In this complex region nothings comes as coincidence. Saudi Arabia knew well that by executing a dissident Shiite sheikh, it would not only trigger anger and demonstrations on the streets of Tehran, but enrage regional Shiite minorities in Bahrain, Yemen and Lebanon as well.

This was a well-calculated move from Saudi Arabia to stimulate rival Iran. This comes amid Iran’s attempts to return to the scene of world politics as Tehran has turned into the unavoidable venue for politicians, tourists, and businessmen.

The revival and return of Iran to the international arena is unbearable for Saudi Arabia. Since Saudi Arabia is facing a historical budget deficit of US$87 billion, equal to 20 percent of its GDP, Iran in the near future will gain access to over $100 billion of its assets blocked around the world.

Saudi Arabia does with a very convoluted governmental system. Feeling secluded and abandoned by the US, Saudi Arabia feels downgraded by turning into the States’ second ally.

Therefore, Saudi Arabia is forced to prove that it really wants to fight terrorism. By executing a Shiite leader and enraging all Shiites, it showed it wants control over the Gulf, one that in the eye of Saudi Arabia cannot be a Persian gulf.

Although the US has also tried to give an impression that it disapproves action of the Saudi government, the strategies of Saudis are clear: to hamper the process of Iran’s return to the international arena step by step.

To achieve its ultimate objective Saudi Arabia intends not only to team up with Persian Gulf kingdoms, but is eyeing relations with Turkey and, in particular, Israel. As it goes, the enemy of enemy is a friend, seems to be true about governments as well.

A meager spark is needed for a highly militarized region to turn into a blazing furnace, either directly or via in-between agents which Iran cannot control.

It is feared that, like the days of the Iran-Iraq war, the West would support Iran’s rivals, at the top of which stands Israel. It seems that the worrying silence of ambassadors supports that view.

However, no one should forget that the world needs unity to fight the ISIS but one witnesses a pointless diplomatic pressure rising in Iran and Saudi Arabia. The entire balance and stability of this strategic region is at stake. It seems arms dealers are going to have bright days ahead.

All the nations have to curb the factors that can aggravate sectarian conflicts between the Shiite and Sunni. It is the harsh reality emerging right before all of us certainly to turn against us, with flares going beyond the current boundaries.

Public offering by Hi-Tech Lubricants

Hi-Tech Lubricants Limited (HTLL) will become the first lubricant company to go public, by issuing 29 million shares at a floor price of PkR37/share through book building of 75% of the total issue size (6th and 7th January) and remaining 25% to offloaded through general public subscription (25-27 January 2016).
HTLL is expects to raise at least PkR1.07 billion from the listing which will be utilized in expanding its footprint in the lubricants market through forward (establishing retail network) and backward integration (construction of an additional filling line).
HTLL has an established presence in the automotive sector through its “ZIC” brand (14% market share in the passenger car sub-segment) contributing 56% to overall revenues becoming a key growth driver for the company.
Post IPO, the company plans to focus on diesel and motorcycle sub-segments of the automotive market (contributing 31% and 9% to revenues) through competitive pricing and cost efficiencies of bulk imports (utilizing the blending plant).
With an aggregate market share of 6% in lubricants, robust 5-year revenue CAGR of 20%, Gross Margin averaging 24% and Net Margin of 6%, HTLL’s fundamental outlook remains promising.
HTLL) is engaged in the import and distribution of petroleum products/lubricants under the brand name of “ZIC” in Pakistan. It imports lubricants from South Korea, which has the single largest Petrochemical Chemical Complex in the world.
HTLL has a network of more than 150 distribution channels across all major cities of Pakistan. The Company diversified from trading to manufacturing and established a state of the art blending plant at Lahore that became operational in 1QFY16.
HTLL plans to utilize IPO proceeds for funding its investment plan of PkR1.25 billion which envisages the development of a service delivery channels with 37 retail service outlets (9 owned and 29 rentals) and additional filling lines (expected to be streamed online by August this year at its Blending Plant (recently set up with a total investment of PkR776 million).
Analysts believe healthy demand exists for its products. However the company has been facing hurdles in meeting this demand due to shortage of product supply on account of 1) time lag in imports and 2) foreign market specified product sizes of finished products, rendering them ineffective for local market, especially for motorbike segment.
Additionally, HTLL’s newly setup Blending Facility is expected to provide rationalized cost benefits to the company as it is likely to now import in bulk as compared to sealed cartons. The new plant will also produce its own High Density Poly Ethylene bottle/Cap and filling lines for imported lubricants, further extending its cost-saving benefits.
The company has been able to keep costs of goods sold (COGS) at a steady 76% of total revenues, indicating preferred pricing from the supplier and ability to pass on the impact of changes in the PkR/US$ parity. As a result, gross margins have been maintained at a stable 25% during the last five years.
That said, administrative and distribution costs have increase by a 5-year CAGR of 26% as the company increased its footprint in the sector. As a result, bottom-line of the company has recorded a 5-year CAGR of 6.2% during FY10-FY15.