1.0
Introduction of Organization
1.1 Nature of Organization Sui Northern Gas Pipelines Limited is the largest integrated gas company serving more than 2.7 million consumers in north central Pakistan through an extensive network in Punjab and North West frontier province. The company has over 43 years of experience in operation and maintenance of high pressure gas transmission and distribution system. It also has expanded its activities to undertake the planning, designing and construction of pipelines, for both itself and other organization. Sui Northern Gas Pipelines Limited in a region of the nation that has a rapidly growing demand for natural gas and power generation due to significant industrial development.
1.2 Natural Gas Natural gas, as the name implies, is found in gaseous form naturally, underground at varying depths and geographical formations. It is one of the most abundant energy sources in Pakistan, and because it is produced domestically, it is not subject to foreign disruptions of price or supply. Comprised primarily of methane, natural gas is odorless and colorless when it comes out of the ground. After impurities are removed, the natural gas is introduced into the pipeline system where it is transported to the consumers. Prior to distribution, a harmless odorant is added to the gas so any leakage can be easily detected before an unsafe situation occurs. In addition to this "rotten egg" odor, natural gas has some built-in safety features. It is lighter than air, so it will rise and dissipate into the atmosphere in the event of a leak. And it has a very narrow combustion range, igniting only when mixed with air at a ratio of between 4 and 14 percent. Any mixture higher or lower than that range and natural gas simply won't burn. It also requires a very high degree of heat, at least 1200 degrees Fahrenheit, before it will ignite. Once combustion occurs, natural gas is one of the cleanest-burning fuels available today. When it is burned properly, the only emissions are carbon dioxide (which is what we exhale when we breathe) and water vapor. Because of its clean-burning properties, natural gas has become the environmental fuel of choice for many residential, 1
commercial and industrial applications. Such applications include: space heating, water heating, cooking, and as a fuel for fireplaces, vehicles, power plants, commercial and industrial boilers, as well as commercial and industrial processing.
1.3 Establishment of OGRA The federal government promulgated the natural gas regulatory authority ordinance in January 2000 based on the bill already passed by the national assembly in1999. Under the ordinance, natural gas regulatory authority ordinance was established to regulator the transmission, distribution and sale of natural gas, including determination of gas tariffs of the companies with the prime objective of safeguarding the consumer's interest. later, federal government decided to enlarge the scope of natural gas authority and consequently the oil & gas regulatory authority ordinance was promulgated in march, 2002 which included the technical regulations of refineries, oil storages, oil pipelines, oil marketing companies, compressed natural gas and liquefied petroleum gas and natural gas regulatory authority ordinance was subsumed in oil & gas regulatory authority. consequent upon oil & gas regulatory authority was establishment on 28th march, 2002 and with effect from march 15, 2003 federal government assigned to oil and gas regulation authority for the regulation of liquefied petroleum gas and compressed natural gas sectors in the country and has designated the oil & gas regulatory authority as an authority in place of the director general (gas) of the ministry of petroleum and natural resources. ten main gas companies are working in Pakistan under the oil & gas regulatory authority, 1. Sui Northern Gas Pipelines Limited. 2. Sui Southern Gas Company Limited. 3. Oil and Gas Development Company Limited (Such Gas Field). 4. Oil and Gas Development Company Limited (Bhal Syedan Field). 5. Oil and Gas Development Company Limited (Nandpur & Panjpir Fields). 6. Central Power Generation Company Limited. 7. Engro Chemical Pakistan Limited. 8. Fuji Fertilizer Company Limited. 9. Pakistan Petroleum Limited. 10. Meri Gas Company Limited
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1.4 Overview of organization I am discussing about the sui Northern Gas Pipelines Limited, which is working in province Punjab and north west province. Sui Northern Gas Pipelines Limited was incorporated as a private company in June 1963 with the object of transmission and distribution of natural gas in Punjab, North West frontier province, and the federal capital area. Sui Northern Gas Pipelines Limited was later converted into a public limited company in January 1964 under the companies act 1913 (now companies ordinance 1984), and is listed on three stock exchange of the company. The company took over the existing Sui-Multan system (349 Kms of 16 inch and 129 Kms of 10 inch diameter pipeline) from Pakistan industrial development corporation and Dhulian-RawalpindiWah system (132 Kms of 6 inch diameter pipeline) from Attock Oil Company limited. the company's commercial operations commenced by selling an average 47 MMCFD gas in two regions viz. Multan and Rawalpindi, serving a total number of 67 consumers. Sui Northern Gas Pipelines Limited is the largest integrated gas company with an existing transmission system of 6,195 Kms and distribution system of 46871 Kms. The company serves more than 2.7 million consumers in north central Pakistan through an extensive network in Punjab and North West frontier province. The company has over 43 years of experience and maintenance of high pressure gas transmission and distribution system. it has also expanded its activities to undertake the planning, designing and construction of pipelines, both for itself and other organizations.
1.5 Company Profile Sui Northern Gas Pipelines Limited (SNGPL) is the largest integrated gas company serving more than 3.4 million consumers in North Central Pakistan through an extensive network in Punjab and NWFP. The Company has over 46 years of experience in operation and maintenance of high-pressure gas transmission and distribution systems. It has also expanded its activities to undertake the planning, designing and construction of pipelines, both for itself and other organizations. SNGPL operates in a region of the nation that has a rapidly growing demand for natural gas and power generation due to significant industrial development. SNGPL was incorporated as a private limited Company in 1963 and converted into a public limited company in January 1964 under the Companies Act 1913, now Companies 3
Ordinance 1984, and is listed on all the three Stock Exchanges of the Country. SNGPL transmission system extends from Sui in Baluchistan to Peshawar in North West Frontier Province (NWFP) comprising over 7,347 KM of Transmission System (Main lines & Loop lines). The distribution activities covering 1,624 main towns along with adjoining villages in Punjab & NWFP are organized through 8 regional offices. Distribution system consists of 67,449 KM of pipeline. SNGPL has 3,451,142 consumers comprising Commercial, Domestic, General Industry, Fertilizer, and Power & Cement Sectors. Annual gas sales to these consumers were 584,895 MMCF worth Rs. 168,933 million during Jul 08 - Jun 09.
1.6 Company Overview • • •
Regional Establishment Administrative Structure Organizational Structure
1.6.1
Regional Establishment
Sui Northern Gas Pipelines Limited was incorporated as a private company in June 1963 with the object of transmission and distribution of natural gas in Punjab, North West frontier province, and the federal capital area. Sui Northern As Pipelines Limited was later converted into a public limited company in January 1964 under the companies act 1913 (now companies ordinance 1984), and is listed on the three stock exchanges of the company. In Sui Northern Gas Pipelines Limited, three main departments are working. 1. Transmission. 2. Distribution. 3. Project. 1.6.1.1 Transmission basically on operational out lift, the company handles the entire operation of a lengthy network of high pressure gas lines comprising 6195 km in length, varying from 6 inch to 36 inch of diameter in accordance with the mineral gas safety rules, oil and gas regulatory authority regulations and international gas transmission industry's standards.
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1.6.1.2 Distribution The company's business strategy is to maximize sales of gas by entering in to new areas through development/expansion of its infrastructure. in accordance with the policy of government of Pakistan. The company has focused on country's economic revival by out reaching industries for gas supply. During the last fiscal year, the company has provided a record number of 531 industrial gas connections resulting in displacement of imported liquid fuels to save precious foreign exchange. The share of natural gas in Pakistan’s energy supply mix has increased from 41 % to 51“, whereas that of oil has decreased from 43 % to 29 % during the last three years. The company has its gas distribution network in 831 difference towns and villages of Punjab and North West frontier province. As on June 30, 2006, the total length of distribution network of Sui Northern Gas Pipelines Limited stands at 46964 km. 1.6.1.3 Project Sui Northern Gas Pipelines Limited, as contractor, carried out construction of pipelines 8” dia, 20 km Badar gas field to Qadir pur field. Similarly an engineering, procurement and construction. Contract was successfully executed from M/s. MOL Pakistan in the shape of 10” dia, 8.75 km Makori-Kharrapa, and gas pipelines. During the year, the company successfully completed various mega projects like gas supply to Murree, Kot Radha Kishan, Lilla town (through CNG) and many other projects in difference regions of Punjab and the North West frontier province. The company has planned to undertake the project of gas supply t various southern districts of north west frontier province (with estimated cost of rs.2.1 billion) viz Hangu, Karak, Lakhi, Bannu, Dera Ismail Khan, Tank and southern district of Punjab (with estimated cost rs.3.7 billion) viz Hasilpur, Chishtian, Mandi, Bahawalnagar, Burewala, Pak Pattan, Haroonabad, Duniapur, Karor Pakka, Vehari, Tibu Sultan, Khairpur tammawali, Yazman, Minchinabad and Fort Abbas through construction of transmission lines of 315 km and 115 km, respectively and distribution supply mains of 460 km.
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1.7 Administrative Structure Policy guidelines and overall control is vested in the elected Board of Directors as provided for in the Companies Ordinance 1984 1.8 Organizational structure Head office of the company is situated in Lahore, chairman, managing director, other departmental senior general managers and all directors offices are there. They control all the areas offices from there. All the financial and non financial matters i.e. credit from bank casting budgeting, allocation of funds matter, taxes, training to employees etc, are made under the supervision of the chief financial officer. Company has the separate internal audit department. The audit department checks that the work is being done according to the company policies, departmental procedures. The audit department periodically conducts the audit of different departments but on the other hand the audit department transfers the pre-audit function to the accounts department of limited payments. Chief financial officer is being appointed according to the clause (xv) of “code of corporate governance” by Securities and Exchange Commission of Pakistan. Audit committee is being established according to the clause (xxx) of “code of corporate governance” by securities exchange commission of Pakistan. These committees are established for the purpose of improving transparency and discourse in financial reporting of companies and for improving their governance to protect the interests of investors. Board of directors is elected by the share holder of the company. The managing director and the chief executive officer of the company is working under umbrella of board of directors. The board of directors who made the decision for the entire satisfaction of the investors as well as the consumer. Other the senior general managers are working under the deputy managing director who directly reports to the managing director and chief executive officer.
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1.9 Regulations Regulatory Regime comprises of: Code of Corporate Governance. Oil & Gas Regulatory Authority Ordinance (XVII of 2002) dated 28th March 2002 Natural Gas Regulatory Authority (Licensing) Rules 2002 dated 26th February 2002. Natural Gas Tariff Rules 2002 (Draft – 5 July 2002). Such other Rules and Regulatireons which the Oil & Gas Regulatory Authority (OGRA) may prescribe. Under the existing pricing and regulatory regimes, following operating conditions have been laid down: Allocation of gas from different sources is made by GOP while the wellhead prices are fixed by the OGRA per Petroleum Concession Agreements/contracts. Consumer selling price including sales to major consumers (i.e. power, fertilizers etc) are notified by the GOP/OGRA. SNGPL is guaranteed a rate of return @ 17.5% on its net fixed assets in operation (ROA) for meeting financial charges, taxation and a reasonable return to the shareholders. The prescribed price i.e. the price which the company is allowed to retain out of consumers selling price to meet the covenanted rate of return, is determined by OGRA.
1.10
Statements • Core Values • Objectives • Vision & Mission Statements
1.10.1Core Value COMMITMENT We are committed to our vision, mission, and to creating and delivering stakeholder value.
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COURTESY We are courteous - with our customers, stakeholders and towards each other and encourage open communication. COMPETENCE We are competent and strive to continuously develop and improve our skills and business practices. RESPONSIBILITY We are responsible as individuals and as teams - for our work and our actions. We welcome scrutiny, and we hold ourselves accountable. INTEGRITY We have integrity - as individuals and as teams - our decisions are characterized by honesty and fairness. 1.10.2
Key Objectives
Sui northern gas pipelines limited committed for; 1. Enhancement of System Capacity 2. Expansion of Transmission and Distribution Network. 3. Increase in Gas Sales. 4. Rehabilitation of Transmission and Distribution Network. 5. Reduction in Unaccounted for Gas Losses. 6. Improvement in Profitability. 7. Improvements in Consumer Services. 8. Adoption of Information Technology. 9. Human Resource Development. 10. Pursue Pipelines construction and Advisory Business 1.10.3
Vision Statement
To be the leading integrated natural gas provider in the region seeking to improve the quality of life of our customers and achieve maximum benefit for our stakeholders by providing an uninterrupted and environment friendly energy resource. 1.10.4
Mission Statement
A commitment to deliver natural gas to all door steps in our chosen areas through
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continuous expansion of our network, by optimally employing technological, human and organizational resources, best practices and high ethical standards.
1.11 Board of Directors Mian Misbah-ur-Rehman Chairman Mr. A. Rashid Lone Chief Executive/Managing Director Mr. Dr. Faizullah Abbasi Director Mr. Mansoor Muzaffar Ali Director Mr. S. M. Asghar Director Mr. Muhammad Iqbal Awan Director Mr. A. Samad Dawood Director Mr. Abdul Bari Khan Director Mr. Tariq Iqbal Khan Director Mian Raza Mansha Director Mr.Inam ur Rahman Director Malik Tahir Sarfraz Director Joint Secretary (Admin), Ministry of Petroleum & Natural Resources Mr. Syed Zahir Ali Shah Director
1.12 Message From Managing Director
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Welcome to the official website of Sui Northern Gas Pipelines Limited (SNGPL), we invite you to get to know our Company by exploring this site on which you will learn about our mission, vision, objectives, core values and a host of other information. Since its inception in 1963, SNGPL has grown manifold as a result of sustained efforts, progressive outlook and dynamic approach in its operations. Our human resource capital is always there to serve you with passion and dedication. As we look ahead, we believe that SNGPL is ideally positioned for continued growth. The wealth of our Company is our customers. We view them as our stakeholders. I would welcome email messages from all stakeholders giving suggestions on ways to provide you with a better service. Should your suggestion be of particular interest to us, I would be pleased to have an opportunity to meet with you and explore them in more detail.
1.13
Profile of Employees
As on monthly report of August, 2009 there are 6994 employees are working in which 6652 employees are working as an operation, and 342 employees are working as a project.
Years 2005 2006 2007 2008 2009
Operation 6904 6852 6712 6916 6652
Project 264 249 209 224 342
Total 7168 7101 6921 7140 6994
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Profile of Employees
50000 40000
Operation
30000
Prpject
20000 10000
09 20
08 20
07 20
20
20
06
0 05
No.of Employees
60000
Years
The other department wise details are as under: (under the August, 2009) Department MANAGEMENT DMD SGM (HR) CFO SGM (ES)2 ACCOUNTS LOGISTIC SUPPORT AUDIT BILLING CIVIL CONST COMPRESSION CORP. AFTER DISTRIBUTION FINANCE IT/MS
Executive 5 3 2 1 2 67 49 32 67 3 40 6 123 13 37
Subordinate 7 5 2 0 2 317 544 39 866 74 249 12 2109 20 82
Total 12 8 4 1 4 384 593 71 933 77 289 18 2232 33 119 13
H.S & ENV TRAINING & DEVELOPMENT LEGAL METERING PLANNING & DEVELOPMENT HUMAN RESOURCE OPS PROJECTS PURCHASE & STORE QUALITY & CONTROL SALES TELECOM TRANSMISSION UFG CONTROL CORROSION TOTAL
4 5 4 11 9 11 42 41 9 45 17 79 8 28 763
2 0 10 221 5 32 127 245 109 292 51 593 7 209 6231
6 5 14 232 14 43 169 286 118 337 68 672 15 237 6994
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Chapter 2 Business Operation
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2.0
Business Operation
2.1
Product Line
Although the company sales only natural gas. The main source through the Sui Northern Gas Pipelines Limited is obtaining gas PPL (Pakistan Petroleum Limited). However, if we think there are two types of gas. 1. Liquid Petroleum Gas (LPG) 2. Compressed Natural Gas (CNG) There details are as under;
2.1.1
Liquid Petroleum Gas (LPG)
Liquid petroleum gas it is used for filling cylinders and it is liquid from gas. Before filling the cylinders, the gas temperature is reduced and then fills the cylinders, which used for domestic purpose, welding purpose etc .
2.1.2
Compressed Natural Gas (CNG)
Now a day every one knows about this type of gas. It is using in vehicles; it is filled through compressed function and fill in specific pressure.
2.2
Main offices of Sui Northern Gas Pipelines Limited
Head office Lahore Gas house 21 Kashmir road, P.O.boxno.56, Lahore- 54000, Pakistan. Ph: (+92-42) 99080000 & 99082000 Facsimile: (+92-42) 99201369 & 99201302 Website: www.sngpl.com.pk
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Faisalabad Sargodha road. Ph: 041-9210033-35 Fax: 041-9210037 Islamabad 28-30 sector 1-9, industrial area. Ph: 051-9257710-19 Fax: 055-9257770 Lahore 21- industrial area Gurumangat road, gulberg III Ph: 042-99263361-80 Fax: 042-99263400 Multan Piran ghaib road. Ph: 061-9220081-86 Fax: 061-9220090
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2.3
Core Business
2.3.1 Gas Sources
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DESCRIPTION Sui(SML) Sui(SUL) Pirkoh+Loti TOTAL Dhodak Meyal Dhurnal Dakhni Adhi Bhanghali Sadqal Ratana Pariwali Pindori Dhullian Salsabil TOTAL Chanda Mela Makori Gurguri TOTAL Hassan Zamzama Sawan Tajjal Qadirpur Qadirpur(RAW GAS) Qadirpur (DEHYDRATED) Kandhkot Chachar Rehmat Badar TOTAL GRAND TOTAL
Total (MMCF) BALOCHISTAN 139,795 10,160 15,664 165,619 PUNJAB 2,120 518 149 17,279 14,355 54 723 366 5,166 653 692 13,807 55,882 N.W.F.P 2,608 5,775 8,865 12,949 30,197 SINDH 5,414 68,735 89,453 4,027 175,589 15,247 8,345 21,464 3,401 4,513 5,272 401,460 653,157
Avg/Day (MMCF) 383 27.84 42.92 453.76 5.81 1.42 0.41 47.33 39.33 0.15 2 1 14.15 1.78 1.9 37.82 153.1 7.14 15.82 24.3 35.5 82.76 14.83 188.32 245.1 11.03 481 41.77 22.86 58.8 9.32 12.36 14.44 1,100 1,789
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2.3.2 Transmission System •
Year Wise Increase in Transmission System
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•
Transmission Network Map
•
Segment-Wise Transmission Break-up
•
Province-Wise Transmission Breakup
2.3.2.1
Year Wise Increase in Transmission System
Year
Kms
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
3,311 3,614 3,865 4,243 4,687 4,920 5,112 5,217 5,122 5,405 5,759 5,776 6,121 6,195 6,625 7,016 7,347
% Age Increase Over Previous Year 9.15% 6.95% 9.78% 10.46% 4.97% 3.90% 2.05% -1.82% 5.53% 6.55% 0.30% 5.97% 1.20% 6.94% 5.90% 4.50%
% Age Increase from 1993 9% 17% 28% 42% 49% 54% 57% 55% 63% 73% 74% 84% 87% 100% 112% 122%
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2.3.3 Distribution System •
Gas Distribution Capacity
•
Distribution Network
2.3.3.1
Gas Distribution Capacity
The Distribution System Capacity as on 31.12.2009 is as follow. SR. No. 1 2 3 4 5 6 7 8
REGION
Bahawalpur Multan Faisalabad Lahore Gujranwala Islamabad Peshawar Abbottabad TOTAL
TOTAL 306 610 530 909 316 381 237 150 3439
CAPACITY (MMCFD) CONTRACTED AVAILABLE 236 70 471 139 408 122 885 24 258 58 223 158 172 65 134 16 2787 652
The Distribution System Capacity as on 30.06.2009 is as follow. SR. No. 1
REGION Bahawalpur
TOTAL 205
CAPACITY (MMCFD) CONTRACTED AVAILABLE 234 -29
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2 3 4 5 6 7 8
Multan Faisalabad Lahore Gujranwala Islamabad Peshawar Abbottabad TOTAL
596 514 821 300 370 229 148 3183
465 396 865 240 213.5 166 131.6 2711.10
131 118 -44 60 156.5 63 16.4 471.90
2.3.3.2 Distribution Network Year Wise Increase In Distribution Network (Status as on 29.02.2008) Year
Kms
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
28,661 29,954 31,477 32,825 34,093 35,814 38,284 42,192 46,671 51,866 57,395
Increase Over the Previous Year 1,293 1,523 1,348 1,268 1,721 2,470 3,908 4,479 5,195 5,529
% Age Increase 4% 5% 4% 4% 5% 6% 9% 10% 10% 10%
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2.3.4
Year Wise Increase in Gas Consumers
Year Wise Increase in Gas Consumers as on 29.02.2008 Year 1997-98 1998 -99 1999 -00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
No. of Consumers 1,637,803 1,747,320 1,887,009 1,986,583 2,113,847 2,208,968 2,340,872 2,516,795 2,723,225 2,953,818 3,102,667
Increase from Previous Year 109,517 139,689 99,574 127,264 95,121 131,904 175,923 206,430 230,593 148,849
% Age Increase Over Previous Year 7% 8% 5% 6% 4% 6% 8% 8% 8% 5%
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2.3.5
Year Wise Increase in Gas Sales
Year
Kms
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
253,104 284,338 308,111 321,957 341,643 452,338 537,086 571,481 576,658
Increase from Previous Year Vol. in MMCF % Age 31,234 11% 23,773 8% 13,846 4% 19,686 6% 110,695 24% 84,748 16% 34,395 6% 5,177 1%
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2.3.6
Projects
Sr. No
Activity D.G Cement Line (Dera Ghazi Khan) Shakardara- Lachi Line
1 2
2.3.7
DIA (Inch)Length (KM)Commissioned On 8
8 TOTAL Budgeted Cost (Million Rs.)
26.00
03.01.2006
25.50 51.50
06.08.2005
Construction Activities in Progress
Sr. Activity No 1 Rawat – Murree Line 2 Sukho – Rawat Line Choa – Bestway Cement- D.G Cement – 3 Chakwal Cement Line 4 Makori Line for M/s MOL Pakistan Badar Gas Field – Qadirpur Gas Field Line 5 for M/s Pakistan Explorations Ltd. Budgeted Cost (Million Rs)
DIA (Inch) 12 16
Length (KM) 58.00 35.50
Commissioned On 77% 23%
10
23.00
98%
10
9
-
8
20.50
99%
Total
145.50 1125.00
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2.3.8 Sr. No 1 2 3 4 5 6
2.3.9
Upcoming Construction Activities Activity Hattar – Abbottabad Line
DIA (Inch) 16
Mian Channun – Hasilpur 12 Line Hasilpur – Chistaian Mandi 8 Line Lachi – Manjuwala Line 12 Hangu Line 8 Manjuwala – End Point Line 8 Total Budgeted Cost (Million Rs)
Length (KM) 62.50
Commissioned On Procurement of Material / Acquisition of Land and Preparation of Design Drawings in progress
90.00
As above
35.00
As above
85.00 35.00 195.00 502.05
As above As above As above 4200.00
Future Projects
The conceptual study of Project-IX is underway to carry maximum gas beyond Multan , to facilitate gas consumers from all walks of life in central Punjab and Northern areas of the country. The basic intent of Project-IX is the elimination of bottle necks in SNGPL’s existing transmission network and to transport gas to independent Power Plants in Punjab province, through system up-gradation with loop lines and system compression enhancement, beside construction of pipelines to absorb additional gas available from gas sources of Potohar region and newly discovered Gurguri-Makori field in Karak District of NWFP province
2.3.10 Performance 27
•
Performance for the Year (FY 2008-09)
•
Performance for the Year (FY 2007-08)
Performance for the Year (FY 2008-09) 2009 2008 (Rupees in Thousand) No of employees Operation Project Total
6,652 342 6,994
6,916 224 7,140
584,895
597,913
Consumers (in numbers)
3,451,142
3,190,181
Customers (in numbers) Industrial Commercial Domestic Total
5,953 52,242 3,358,439 3,416,634
5,442 49,176 3,101,303 3,155,921
7,347 67,449
7,016 59,951
Gas Sales (in MMCF)
Transmission and Distribution System (in Kilometers) Transmission main Distribution main and services Performance for the Year (FY 2007-08)
2008 2007 (Rupees in Thousand) No of employees Operation Project Total
6,916 224 7,140
6,712 209 6,921
597,913
576,658
Consumers (in numbers)
3,190,181
2,953,818
Customers (in numbers) Industrial Commercial Domestic Total
5,442 49,176 3101,303 3,155,921
4,425 45,925 2,869,208 2,919,558
Gas Sales (in MMCF)
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Transmission and Distribution System (in Kilometers) Transmission main Distribution main and services
7,016 59,951
6,625 52,394
2.3.11 Bill types There are different four types of bill. 1) Normal Bill 2) Provisional Bill 3) Minimum Bill 4) Estimated Bill
2.3.11.1
Normal Bill
Bill is issued as per meter reading supplied by the meter reader and calculated as per rates provided by govt. for all categories of consumer. Pressure factor is applied for the calculation of volume of gas consumed for commercial consumers, while pressure, temperature & super compressibility factor is also applied to work out volume of gas consumed by Industrial / bulk supply consumers.
2.3.11.2
Provisional bill
When meter reading could not be recorded due to following reasons, a Provisional Bill is issued to the consumer. 1) Index glass dirty/misty. 2) Water inside meter. 3) Meter covered with dust. 4) Meter covered with bushes. 5) Meter under rain water. 6) Meter installed above normal height. 7) Meter position is not approachable. 8) Meter locked inside the premises. 9) Dog at site. 10) Not allowed by the consumer.
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11) Premises not found. These 11 reasons are recorded by meter reader and reflected on your monthly bill. Provisional bill amount is 110% of the previous bill. Provisional bill amount is adjusted in next normal bill when proper reading is provided.
2.3.11.3
Minimum bill
Bill is charged as minimum due to zero consumption of gas. Bill is charged as minimum due to the gas consumption below the minimum consumption limit as per Govt. notification of minimum charges as defined below (without Meter Rent/GST): Domestic Commercial Special Domestic General Industry Cement Industry Bulk Domestic
Rs. 99.74 Rs. 1046.96 Rs. 99.74 Rs. 6646.43 Rs. 7657.34 Rs. 406.69
It is subject to change
2.3.11.4
Estimated bill
Estimated Bill is charged due to any violation of Gas Connection Rules & Regulation such as theft or if meter is sticky (Out of Order) and is unable to record the gas passing through it. Bill is charged on seasonal annual consumption. In this case average of previous year's seasonal consumption is used. There are two types of seasonal average: Summer Average = Average of ( Mar to Nov). Winter Average =Average of (Dec to Feb).
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Chapter 3 Structure of Finance Department
3.1
Structure of finance department
In the finance department, about 1331 employees are working under the supervision of chief financial officer and senior general manager finance. In the distribution office
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Faisalabad, employees are working under the senior area accountant and senior billing officer. The corporate structure of finance department to ensure accurate, timely, efficient and effective discharge of accounting functions. The depart; mental head is chief financial officer. General Manager Accounts and general manager finance are being working under the umbrella of chief financial officer. Down the line duties and responsibilities are assigned to chief accountant, deputy chief accountants, senior accountants, sectional head, executive and support staff. The structure chart of finance department is given as:
3.1.2 Finance & accounts functions The finance and accounts department is primarily responsible to keep proper books of accounts with respect to: All sums of money received and expended by the company and the matters in respect of which the receipt and expenditures takes place. All sales and purchases of goods by the company. All assets of the company. All liabilities of the company. In pursuit of the achievement of corporate objectives and targets fixed, the accounts department transacts all the activities of the company in the financial terms, record it with accuracy, manage to provide requisite funds at minimum cost, plae the surplus funds with the secured financial institutions in accordance with the approved policies of the board of directors and on overall basis acts as financial controller by establishing effective and budgetary controls.
3.1.3 Organization The corporate structure of sui northern gas pipelines limited provides for establishment of finance and accounts department to ensure accurate, timely. Efficient and effective discharge of accounting functions. The department is headed by chief financial officer. He is assisted by the general manager (finance) and general manager (accounts). Down line duties and responsibilities have been assigned to chief accountants, deputy chief accountants, senior accountants, section heads and the support staff. 3.1.3
Accounting for areas 32
3.1.3.1 Introduction In order to facilitate smooth operation of the area offices imp rest accounts are approved by the head office for making payments to contractors, suppliers, and other outside agencies and for staff claims. The cheques sent by head office are deposited in bank account which is operated jointly by the imp rest holder (area general manager) and the senior area accountant. All payments in the area are made out of imp rests on the basis of payments vouchers duly approved by the area general manager and signed by the area accountant. Each voucher is serially numbered and entered in the imp rest cash book. Reimbursement from head office is claimed on the basis of voucher entered in the imp rest cash book showing the accounts heads/job numbers and the amounts paid. Similarly receipts are recorded through credit vouchers which are also entered in the imp rest cash book. The area accountant is also responsible to monitor gas bill collection and its reconciliation, receive amounts from consumers on account of securities, and cost sharing jobs and relocation of service line jobs. The request for job cost numbers for cost sharing cases are also processed by the respective area accountants. Functions and accounting procedures Fixation of imprest lmit _ new areas Enhancement of imprest limited Approval of imprest Imprest payment at areas Work orders/contracts Supplier’s payments Contractor’s payments Receipts from outside parties Completion of cash book Phusical checking of cash and monitoring of bank accounts Gas bills collection and security accounts reconciliation Issuance of job numbers for cost sharing works Pre-audit
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Tax deduction Books and records
3.1.3.2
Fixation of imprest limit _ new areas
The limit for new imprest is fixed taking into account the future estimated volume of expenses. The basis considered for this purpose is in transit period / amount and reimbursement period, which is normallu one third of total expenses in month.
3.1.3.3
Enhancement of imprest limited
The trend of expenses incerred at the area during last one year / 6 months is considered taking into account the following data for the said period which represent the total existing limit: Expenses incurred Bank balance Cash in hand Outstanding advances In transit
3.1.3.4
Approval if imprest
On the request of area accounts, the approval from chief financial officer is obtained and new bank account is opened with the signatures of competent authority as approved by the board of directors. For enhancement of imprest, limited the justification on the basis of required data is prepared and if found feasible the approval from chief financial officer is obtained and this increase is continuously monitored.
3.1.3.5
Imprest payments at areas
Payments out of imprest are to be made by the area accountants to contractors, suppliers and for other services and to staff after approval of the competent authority.
3.1.3.6
Work orderd/contractors
Payments are made to contractors for laying distribution network, civil works, transmission lines, haulage works and for miscellaneous activities. Distribution contractors for performing various activities are approved by the company for each area from time to time. Rates for each activity are also approved / revised by the company
34
after every two years. Works orders are issued by the area general manager assigning work to each contractor. Copies of work orders are sent to accounts department. In other departments, like projects, transmission and civil contracts / work orders are awarded on the basis of competitive bidding according to the approved procedures and copies sent to accounts department. Similarly contracts for haulage of goods and for hiring of equipment are awarded on annual basis by purchase & store department according to the purchase & stores procedures and copies sent to accounts. Check that the contract / work order has been approved by the competent authority. Check computation and keep it in an area-wise contractors file.
3.1.3.7
Supplier’s payments
Payment to suppliers against local purchase orders should be checked with the supporting documents i.e. Local purchase order and receiving statement etc. A monthly bill paid register should be submitted to head office (bills section) duly reconciled with the payments debited to sundry creditors account in the imprest cash book. Contractor payments Above payments dully approved by the competent authority will be made after due checking of supporting documents and included in job cost columns of imprest cash book. Check that the supporting documents attached to the vouchers/claims are in agreement with the claim amount and cash memos attached, if any are proper. Receipts from outside parties Receipts on accounts of cost sharing charges, service line relocation charges etc. recorded through credit vouchers showing the appropriate account head. It will be ensured that all receipt in the form of cheques, demand draft, pay orders and cash received on company account will be deposited into bank on daily basis. The receipt if any collected after banking hours is to be deposited in company account on next working day. Completion of cash book
35
•
All payments vouchers and credit vouchers must be serially numbered accurately and entered in the imprest cash book. A data control slip should be completed and attached to the imprest cash book sent to head office for re-imbursement.
•
Before sending the imprest cash book for re-imbursement the computations and balances carried forwarded to next sheets must be confirmed. The imprest cash book must be signed by area general manager and the senior area accountant.
3.1.3.8 •
Physical checking of cash and monitoring of bank accounts
The account should check the cash physically on daily basis at the end of each day. Cash physically checked should be recorded in a register kept for this purpose and signed by the cashier and accountant showing the denomination of notes.
•
Duplicate keys for the cash chest will be held and one each will be retained by the cashier and the accountant/incharge.
•
The area accountant must monitor the bank account on continuous basis so that the balance is kept reconciled. The area accountant sends bank reconciliation by 7th of each month with amount appearing in the cash book.
•
The area accountant should monitor the regular receipt of bank statements for checking and pointing out discrepancies e.g. time barred cheques; bank charges or some other receipt not recorded in the imprest cash book.
3.1.3.9 •
Gas bills collection and security accounts reconciliation
Company has authorized various banks to collect gas bills. As per standing instructions all banks are required to transfer all collections to company’s main collection accounts on daily basis. The area accountant is required to obtain bank statements for each accounts on monthly basis and prepare proper reconciliation so as to ensure that all funds collected on behalf of the company have been transferred as per instructions. All outstanding items will be pursued for final settlement.
•
The reconciliation of the gas sales collection account will be submitted to head office by 15th of each month.
36
•
The area accounts received amounts from the prospective consumers and the connected consumers under the following heads of accounts.
•
Gas connection application fee for domestic and commercial connections.
•
Security for domestic, industrial, domestic and special domestic consumers.
•
Service line charges.
•
Additional security as and when due.
•
Re-connection fee.
•
A separate security account for depositing the amount collected in connection with gas connections and other heads as stated above has also been opened in the area. The accountant is required to collect bank statements for each account on monthly basis and prepare reconciliation. All outstanding items will pursue for settlement.
3.1.3.10
Issuance of job numbers for cost sharing works
Company undertakes cost sharing jobs and service-line relocation works on payment by consumers. Proper job number is slotted by the area accountant so as to record all cost and facilitate subsequent refund/recovery. On receipt of the completion reports these will be checked by area accounts and recovery/refund will be arranged. Pre-audit Managing director office note 921 dated November 5, 2003 pre audit functions have been transferred to accounts. The area accountant is responsible for evaluation of all purchases orders as per procedure. Pre-audit of all contract payments including partial payment certificate/final payment certificate and other purchases will be carried out as per company procedure and instructions issued from time to time. Tax deduction Deduction of tax should be made according to the relevant section of income tax ordinance, 2001 keeping in view the different rates applicable to contractors, suppliers and service contracts.
3.1.3.11
Books and record
•
Serial number-wise paid imprest voucher kept in bound form.
•
Imprest cash books pertaining to each area.
37
•
Bank reconciliation statements pertaining to cash account.
•
Daily cash reconciliation registers.
•
Security registers.
•
Stock of received goods.
•
Serial number and date wise paid and receipt vouchers.
3.1.3.12
Mobilization of funds
Cash mobilization techniques fall into two areas: •
Acceleration of receivables
•
Control of disbursements
Receivable are those funds that come into the organization’s treasury. Cash flow can be expedited
38
Chapter 4 Financial Statements and Analysis
39
4.1 Balance sheet (Liabilities) Sui Northern Gas Pipeline Ltd Balance Sheet As on June 30, 2009
2008
2007
2006
1,500,000,
1,500,000, 1,500,000,
Equity and Liabilities Share Capital and Resrves Authorized share capital 1500000000 (2006: 1500000000) Ordinary Shares of Rs 10. each 1,500,000, Issued Subscribed and paid up capital
5,491,053
5,491,053
5,491,053
4,991,866
Revenue Reserves
10,656,463
11,647,796
10,798,422
10,116,826
Total Equity
16,147,516
17,138,849
16,289,475
15,108,692
Secured
0
62,500
662,500
1,949,084
Unsecured
1,798,312
2,717,963
3,710,181
Security Deposit
11,439,969
9,068,102
7,270,407
5,865,779
Deffered Credit
32,000,133
31,386,548
23,108,412
16,663,770
Deffered Liabilities
-
-
-
-
Deffered Tax
8,178,211
7,562,412
6,752,570
6,046,992
Employee benefits
392,249
336,667
298,026
312,654
53,808,874
51,134,192
41,802,096
36,312,375
Trade and other payable
49,785,736
27,416,384
22,810,592
22,031,290
Accured Mark up/interst
552,160
396,323
467,452
548,217
Non Current Liabilites Long Term Financing
5,474,096
Current Liabilities
40
Short Term Borrowing
950,858
Current portion of long financing Taxation-net
0
1,102,980 1,561,895
0
0
2,281,243
2,559,650
0
0
0
676,345
52,391,734
29,374,602
25,559,287
25,815,502
Total Liabilities
106,200,608
80,508,794
67,361,383
62,127,877
Contingencies and commitments
0
0
0
0
Total Equity and liabilities
122,348,124
97,647,643
83,650,858
77,236,569
41
4.2 Balance sheet (Assets) Sui Northern Gas Pipeline Ltd Balance Sheet As on June 30, 2009
2008
2007
2006
Non Current Assets Property Plant and Equipments
78,345,432 62,025,792 50,053,930 43,568,193
Intangible assets
270,845
168,825
0
0
Investment in an associate company
4,900
4,900
4,978
4,900
Long term loans
235,060
224,645
222,310
209,483
Employee Benefits
347,547
357,140
0
0
Long term Deposits and prepayments
7,482
7,138
6,406
7,073
79,211,266 62,788,440 50,287,624 43,789,649 Current assets Stores and spare parts
2,171,953
2,287,084 1,089,526 1,184,140
Stock in trade- gas in pipelines
783,362
525,370
Trade debts
25,706,362 18,757,385 16,229,067 14,517,536
Loan and advances
136,766
Deposits and short term prepayments
93,573
473,404
445,772
148,403
181,414
82,111
95,428
33,293
31,926
40,988
72,756
60,760
Interest accrued
13,634
Other receivables
11,176,987 2,235,441 1,340,234 980,650
Taxation-net
1,302,429
764,521
Sales tax recoverable
434,915
1,356,339 263,233
743,507
Short term investments
0
511,096
0
Cash and bank balances
1,316,877
8,137,148 13,546,228 15,400,518
134,079 0
0
43,136,858 34,859,203 33,363,234 33,446,920 Total Assets
122,348,124 97,647,643 83,650,858 77,236,569
42
4.3 Profit and Loss Account Sui Northern Gas Pipeline Ltd Profit and Loss Account As on June 30, Profit & Loss Account
2009 160,714,7
Gross Sale
37
Add: Differential Margin
94
8,219,0 168,933,8 31 151,337,3 Cost of gas sold
39 17,596,4
Gross profit
92 990,1
Rental and service income Surcharge and interest on gas sales arrears
01 1,200,8 22 1,096,0
Amortization of deferred credit
33 3,286,9 56 20,883,4 48
2008 123,404,53 7 750,49 6 124,155,03 3 109,107,46 1 15,047,57 2 916,35 1 703,32 8 790,28 9 2,409,96 8 17,457,54 0
2007 2006 122,091,65 107,897,29 2 1 122,091,65 2 108,682,85 0 13,408,80 2 828,14 0 673,24 1 591,35 4 2,092,73 5 15,501,53 7
107,897,29 1 94,032,49 5 13,864,79 6 744,955 534,470 472,879 1,752,30 4 15,617,10 0
Operating Expenses 15,011,5 Distribution cost
29
Administrative expenses
00
11,797,77 8
1,723,2
1,379,08 0
16,734,7 29
05
08
Operating profit
22
Finance cost
82
3,496,49 241,32
3,323,48 1,446,56
1,855,11
4,770,05
653,1
1,828,39 9
5,110,28 7
789,24 7
4
8
6
346,300 4,470,86
3,255,16 9
8 2,383,4
4,817,16 4
4
8 1,210,0
Other Operating Income
10,799,93 6
3 957,19
1,173,4 14
12,005,04
4,280,68 4
1,172,86 0
4
2 2,975,3
Other operating expenses
1,312,98
13,176,85
4,148,7
9,627,07 6
3
8
19
10,692,06 1
6,299,26 3
860,71 5
1,180,20 3 43
Profit before taxation and share from associate 40 Share in profit of associate-before tax
1,730,2
3,980,80 9 -
2
40
7
04
7
36
4.4
9
1,396,81 6
2,678,18 7
4.5 5
0
7
0
5,119,06
1,571,30
2,495,84
1.6 Earrings per share- basic and diluted
4 1,484,54
930,5 Profit after taxation
0 78 4,249,49
3,980,38
799,7 Taxation
2
5,119,06
42 1,730,2
Profit before taxation
4,249,57
3,722,24 4
4.8 8
6.76
Vertical/Cross-Sectional/Common Size Analysis Techniques
Vertical/Cross-sectional/Common size statements came from the problems in comparing the financial statements of firms that differ in size. •
In the balance sheet, the assets as well as the liabilities and equity are each expressed as a 100% and each item in these categories is expressed as a percentage of the respective totals.
•
In the common size income statement, turnover is expressed as 100% and every item in the income statement is expressed as a percentage of turnover (sales).
44
4.4 Vertical Analysis Sui Northern Gas Pipeline Ltd Vertical Analysis (P&L Account) As on June 30, June,30,2006 June,30,2007 June,30,2008 June,30,2009 (Figure in Profit and loss items Gas sales Add / ( Less) : Differential Margin/ (Gas Development surcharge) Cost of Gas Sold Gross Profit Rental and Service income Surcharge and interest on gas sale arrears
Amortization of deferred credit Less: operating expenses Distribution Cost Administrative expenses
Other operating expenses Other operating income Operating profit Finance cost Profit before tax and share from associate
share in profit of associates-before tax profit before taxation less: tax profit after tax
percentage)
100
100
100
100
-1.9 98.1 85.25 12.85 0.69 0.5 0.44 14.47
-7.79 92.21 81.22 10.98 0.68 0.55 0.48 12.7
0.61 100.61 88.41 12.19 0.74 0.57 0.64 14.15
5.11 105.11 94.17 10.95 0.62 0.75 0.68 12.99
8.92 1.09 10.01 4.46 0.32 4.14 1.69 5.84 1.09 4.74 0 4.74 1.29 3.45
8.76 1.08 9.83 2.86 0.2 2.67 1.52 4.19 0.7 3.48 0 3.48 1.29 2.19
9.56 1.12 10.68 3.47 0.78 2.69 1.17 3.87 0.64 3.23 0 3.23 1.2 2.02
9.34 1.07 10.41 2.58 1.85 0.73 0.75 1.48 0.41 1.08 0 1.08 0.5 0.58
4.4.1 Vertical Analysis Sui Northern Gas Pipeline Ltd Vertical Analysis (Balance Sheet) As on June 30,
BALANCE SHEET ITMES ASSETS Non - current assets Property, plant and equipment Intengible assets
June
June
30,2006
30,2007 30,2008 (Figre in percentage)
56.41 0
59.79 0.02
June
63.66 0.03
June 30,2009
64.03 0.22
45
Investment in associate Long term loans Employee benefits Long term deposits and prepayments Current Assets Stores and spare parts Stock in trade-gas in pipelines Trade debts Loans and advances trade deposits and short term prepayments interest accrued Other receivables Income tax recoverable-net Sales tax recoverable Short term investments Cash and bank balances Total assets
4.4.2
0.01 0.27 0 0.01 56.7
0.01 0.27 0.07 0.01 60.16
0.01 0.23 0.37 0.01 64.3
0 0.19 0.28 0.01 64.74
1.53 0.58 18.8 0.11
1.3 0.57 19.39 0.22
2.34 0.54 19.21 0.15
1.78 0.64 21.01 0.11
0.04 0.08 1.27 0 0.96 0 19.94 43.3 100
0.04 0.09 1.58 0.16 0.31 0 16.19 39.84 100
0.1 0.04 2.29 0.78 1.39 0.52 8.33 35.7 100
0.08 0.01 9.14 1.06 0.36 0 1.08 35.26 100
Vertical Analysis
Sui Northern Gas Pipeline Ltd Vertical Analysis (Balance Sheet) As on June 30, EQUITY AND LIABILITIES Share capital and reserves Authorized share capital (1,500,000,000 ordinary shares of Rs.10 each) Issued subscribed and paid up share capital Revenue reserves Total Equity Non-Current Liabilities Long term financing -Secured -Unsecured Security deposits Deferred credit Deferred tax Employee bebefits
6.46 13.1 19.56
6.56 12.9 19.47
5.62 11.93 17.55
4.49 8.71 13.2
2.52 7.09 7.59 21.57 7.83 0.4 47.01
0.79 4.43 8.69 27.61 8.07 0.4 49.99
0.06 2.78 9.29 32.14 7.74 0.34 52.37
0 1.47 9.35 26.15 6.68 0.32 43.98
46
Currenat Liabilities Trade and other payable Interest / mak up accrued Current portion of long term financing Taxation-Net Total Liabilities Contingencies and commitments Total Equity and Liabilities
28.52 0.71 3.31 0.88 33.42 80.44 0 100
27.26 0.56 2.73 0 30.54 80.53 0 100
28.08 0.41 1.6 0 30.08 82.45 0 100
40.69 0.45 0.78 0.9 42.82 86.8 0 100
Interpretation From the vertical analysis above, we can compare the percentage mark-up of asset items and how they have been financed. The strategies may include increase/decrease the holding of certain assets. We may as well observe the trend of the increase in the assets and liabilities over several years. 4.5
Horizontal Financial Statement Analysis
This technique is also known as comparative analysis. It is conducted by setting consecutive balance sheet, income statement or statement of cash flow side-by-side and reviewing changes in individual categories on a year-to-year or multiyear basis. The most important item revealed by comparative financial statement analysis is trend. A comparison of statements over several years reveals direction, speed and extent of a trend(s). The horizontal financial statements analysis is done by restating amount of each item or group of items as a percentage. Such percentages are calculated by selecting a base year and assign a weight of 100 to the amount of each item in the base year statement. Thereafter, the amounts of similar items or groups of items in prior or subsequent financial statements are expressed as a percentage of the base year amount. The resulting figures are called index numbers or trend ratios. From the balance sheet statement in exhibit 1. The following indexed balance sheet can be established.
47
4.5
Horizontal Analysis Sui Northern Gas Pipeline Ltd Horizontal Analysis (P&L Account) As on June 30, June
June
June
30,2008
30,2009
Percentage) 190 13580 175 188 116
192 -1071 193 207 130
250 -11731 263 288 152
130
143
155
101 132 119
128 165 118
134 220 133
228 305 159
124 125 124 109 176 106 450 136 122 140 102 162
138 139 138 79 123 77 457 110 89 116 115 117
152 146 152 97 486 79 356 103 81 109 109 109
194 183 193 94 1512 28 298 51 67 47 59 41
147
106
99
37
30,2006
Profit & loss items Gas Sales Add / (Less):Differential Margin / (Gas Development Surchage) Cost of Gas Sold Gross Profit Rental and Service Income Surchage and Interest on Gas Sales Arrears Amortization of Deferred Credit Less: Operating Expenses Distribution Cost Administrative Expenses
Other Operating Expenses Other Operating Income Operating Profit Finance Cost Profit before Taxation Less:Taxation Profit after Taxation Earning per Share-Basic and Diluted (Rupees)
168 2920 165 175 120 117
June 30,2007 (Figure in
48
4.5.1 Horizontal Analysis Sui Northern Gas Pipeline Ltd Horizontal Analysis (Balance Sheet) As on June 30, June BALANCE SHEET ITEMS ASSETS Non - current assets Property, plant and equipment Intengible assets Investment in associate Long term loans Employee benefits Long term deposits and prepayments Current Assets Stores and spare parts Stock in trade-gas in pipelines Trade debts Loans and advances Trade deposits and short term prepayments
interest accrued Other receivables Income tax recoverable-net Sales tax recoverable Short term investments Cash and bank balances Total Assets
June
June
30,2006 30,2007 30,2008 (Figure in percentage)
June 30 2009
118 0 100 92 0 113 118
135 0 102 98 0 102 124
168 0 100 99 0 114 169
212 0 100 103 0 119 213
197 162 149 58 91 175 274 0 0 0 181 169 136
182 172 167 129 95 209 369 0 0 0 159 169 147
381 190 193 105 273 118 626 0 0 1108 96 176 172
362 284 264 97 268 39 3128 0 0 0 15 218 215
4.5.2 Horizontal Analysis Sui Northern Gas Pipeline Ltd Horizontal Analysis (Balance Sheet) As on June 30, EQUITY AND LIABILITIES Share capital and reserves Authorized share capital (1,500,000,000 ordinary shares of Rs.10
100
100
100
100
49
each) Issued subscribed and paid up share capital Revenue reserves Total equity Non-Current Liabilities Long term financing -Secured -Unsecured Security deposits Deferred credit Deferred tax Employee benefits Current Liabilities Trade and other payable Interest / mark up accrued Short term borrowings Current portion of long term financing Taxation-Net Total liabilities Total Equity and Liabilities
100 173 139
110 137 150
110 199 158
110 182 149
39 91 132 206 109 16 117
13 62 164 285 122 17 134
1 45 204 388 136 17 164
0 30 258 395 147 20 173
168 354 0 159 912 173 135 136
174 301 0 142 0 171 146 147
209 256 0 97 0 197 175 172
380 356 0 68 0 351 231 215
Interpretation As basis of Analysis, the analyst may seek variables which seem to improve or deteriorate and bring a challenge to the stakeholders in their various decisions. Example from the previous table one can ask the following questions? •
Why is there an increase in the stock of the company? Has the company changed its inventory policy?
•
Why did taxation increase so tremendously? Were there any changes in taxation? Is it reflected by the increase in sales? Profit?
•
Why is there an increase in the fixed assets and at the same time decrease in the long-term debt? How were these assets financed?
50
4.6
RATIO Ratio Analysis ANALYSIS
Ratio analysis is one of the techniques of financial analysis where ratios are used as a yardstick for evaluating the financial condition and performance of a firm. Analysis and LIQUIDITY RATIOS
interpretation of various accounting ratios gives skilled and experienced analyst a better understanding of the financial condition and performance of the firm than what he could have obtained only through a perusal ofActivity financial statements. Ratios
leverage Ratio PROFITABILITY RATIOS
51
4.6.1 LIQUIDITY RATIOS Liquidity represents the ability of a company to efficiently and economically accommodate deposits withdrawal as well as fund increase in assets. A company has a liquidity potential when it has the ability to obtain sufficient funds in a timely manner at a reasonable cost. Illiquidity is a primary factor leading to a Company’s failure whereas high liquidity helps otherwise weak institutions to remain funded during the period of difficulty. •
Liquidity refers to the ability of a firm to meet its short-term financial obligations when and as they fall due.
•
The main concern of liquidity ratio is to measure the ability of the firms to meet their short-term maturing obligations. Failure to do this will result in the total failure of the business, as it would be forced into liquidation.
52
I. Current ratio II. Quick Asset to Deposit ratio
4.6.1.2
CURRENT RATIO
The Current Ratio expresses the relationship between the firm’s current assets and its current liabilities. Current assets normally include cash, marketable securities, accounts receivable and inventories. Current liabilities consist of accounts payable, short term notes payable, short-term loans, current maturities of long term debt, accrued income taxes and other accrued expenses (wages). Current Ratio :-
Current Assets Current Liabilities
Current Asset
2009 43,136,858
2008 34,859,203
2007 33,363,234
2006 33,446,920
Current Liabilities
52,391,734
29,374,602
25,559,287
25,815,502
0.82
1.19
1.31
1.30
Current Ratio Curremt Ratio 1.40 1.20 Ratio
1.00 0.80
Curremt Ratio
0.60 0.40 0.20 0.00 2009
2008
2007
2006
Year
INTERPRETATION This ratio shows that whether the current assets of the company are Sufficient to meet the current liabilities or not. In 2006 it was 1.30 that shows low liquidity but comparatively better other years because this ratio is above standard that is 2. In 2007 it was 1.19, that
53
shows that firm use financing leverage in 2007 and approximately to 0.82 in 2008, that shows that firm take more short term loans from market.
4.6.1.2
QUICK RATIO OR TEST ACID RATIO
Measures assets that are quickly converted into cash and they are compared with current liabilities. This ratio realizes that some of current assets are not easily convertible to cash e.g. inventories. The quick ratio, also referred to as acid test ratio, examines the ability of the business to cover its short-term obligations from its “quick” assets only (i.e. it ignores stock). The quick ratio is calculated as follows Quick Ratio:-
Current Assets Inventory Current Liabilities Acid Test Ratio
Quick assets Current Liabilities
2009 43,136,85 8
2008 34,859,20 3
783,362
525,370
52,391,73 4
29,374,60 2
0.81
1.17
2007 2006 33,363,23 4 33,446,920 473,404
445,772
25,559,28 7 25,815,502 1.29
1.28
54
Acid Test Ratio 1.40
Ratio
1.20 1.00 0.80
Acid Test Ratio
0.60 0.40 0.20 0.00 2009
2008
2007
2006
Year
INTERPRETATION This ratio shows that how much quick assets are available to meet the demand of the accountholders. This ratio was 1.29% in 2007 and decreased to 1.17% in 2008. It shows that in 2007 the immediate liquidity position of the company was comparatively weak. But it is also more decreases in 2009. 4.6.1.3 Net Working Capital Current Assets - Current Liabilities
Current Asset
2009 43,136,858
2008 34,859,203
2007 33,363,234
2006 33,446,920
Current Liabilities
52,391,734
29,374,602
25,559,287
25,815,502
Net Working Capital
(9,254,876)
5,484,601
7,803,947
7,631,418
55
Rs
Net Working Capital 9,000,000 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000
Net Working Capital
0 2009
2008
2007
Year
4.6.2
Activity Ratio
If a business does not use its assets effectively, investors in the business would rather take their money and place it somewhere else. In order for the assets to be used effectively, the business needs a high turnover. Unless the business continues to generate high turnover, assets will be idle as it is impossible to buy and sell fixed assets continuously as turnover changes. Activity ratios are therefore used to assess how active various assets are in the business. Note: Increased turnover can be just as dangerous as reduced turnover if the business does not have the working capital to support the turnover increase. As turnover increases more working capital and cash is required and if not, overtrading occurs.
4.6.2.1 Receivable Turn Over Ratio Annual Credit Sale ------------------------Total Receivable
56
2009 25,706,362
2008 18,757,385
2007 16,229,067
2006 14,517,536
Sale
160,714,737
123,404,537
122,091,652
107,897,291
Average Receivables
22,231,874
17,493,226
15,373,302
14,517,536
Receivable
Receivable Turn Over
7.2
7.1
7.9
7.4
Receivable Turn Over
Turn over
8.2 8.0 7.8 7.6 7.4
Receivable Turn Over
7.2 7.0 6.8 6.6 2009
2008
2007
2006
Year
INTERPRETATION This ratio measures the number of times, on average, receivables (e.g. Accounts Receivable) are collected during the period. In 2008 & 2009 this ratio is decreased .07 & .06 from last year 2007. It shows that firm has change its account receivable policy. 4.6.2.2 Inventory Turnover Ratio Cost of Goods Sold ---------------------------Average Inventory 2009 151337339
2008 109107461
2007 108682850
2006 94032495
Inventory
783,362
525,370
473,404
445,772
Average Inventory
654366
499387
459588
445,772
Inventory Turn Over Ratio
231.27
218.48
236.48
210.94
Cost of goods sold
57
Turn over
Inventory TurnOver 240.00 235.00 230.00 225.00 220.00 215.00 210.00 205.00 200.00 195.00
Inventory Turn Over
2009
2008
2007
2006
Year
Interpreatation This ratio measures the stock in relation to turnover in order to determine how often the stock turns over in the business. It indicates the efficiency of the firm in selling its product. It is calculated by dividing he cost of goods sold by the average inventory.
4.6.2.3
Total Asset Turn Over Sales -------------Total Assets
Total sale Total Assets Total Asset Turn Over
2009 160714737
2008 123404537
2007 122091652
2006 107897291
122,348,124
97,647,643
83,650,858
77,236,569
1.31
1.26
1.46
1.40
58
Total Asset Turn Over 1.50 Turn Over
1.45 1.40 1.35
Total Asset Turn Over
1.30 1.25 1.20 1.15 2009
2008
2007
2006
Year
Interpretation Asset turnover is the relationship between sales and assets •
The firm should manage its assets efficiently to maximize sales.
•
The total asset turnover indicates the efficiency with which the firm uses all its assets to generate sales.
•
It is calculated by dividing the firm’s sales by its total assets.
•
Generally, the higher the firm’s total asset turnover, the more efficiently its assets have been utilized.
4.6.2.4
Fixed Asset Turn Over Total sale / Fixed Asset
Total sale
2009 160714737
2008 123404537
2007 122091652
2006 107897291
Fixed Asset
79,211,266
62,788,440
50,287,624
43,789,649
2.03
1.97
2.43
2.46
Fixed asset turn over
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Fixed Asset Turn Over 3.00 Turn over
2.50 2.00 1.50
Fixed Asset Turn Over
1.00 0.50 0.00 2009
2008
2007
2006
Year
4.6.3 •
Leverage ratio The ratios indicate the degree to which the activities of a firm are supported by creditors’ funds as opposed to owners.
•
The relationship of owner’s equity to borrowed funds is an important indicator of financial strength. •
The debt requires fixed interest payments and repayment of the loan and
legal action can be taken if any amounts due are not paid at the appointed time. A relatively high proportion of funds contributed by the owners indicates a cushion (surplus) which shields creditors against possible losses from default in payment. Note: The greater the proportion of equity funds, the greater the degree of financial strength. Financial leverage will be to the advantage of the ordinary shareholders as long as the rate of earnings on capital employed is greater than the rate payable on borrowed funds. The following ratios can be used to identify the financial strength and risk of the business.
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4.6.3.1
Debt to Share holder equity Ratio Total Debt ----------------------Equity 2009 106,200,608
2008 80,508,794
2007 67,361,383
2006 62,127,877
Shareholders Equity
16,147,516
17,138,849
16,289,475
15,108,692
Debt to Equity Ratio
658%
470%
414%
411%
Total Debt
Leverage / Debt Ratios 700% Percentage
600% 500% 400%
Leverage / Debt Ratios
300% 200% 100% 0% 2009
2008
2007
2006
Year
INTERPRETATION This ratio indicates the extent to which debt is covered by shareholders’ funds. It reflects the relative position of the equity holders and the lenders and indicates the company’s policy on the mix of capital funds. This ratio shows that how much company is financed more by debt than its own equity. From 2006 to2009 it goes on raising which shows that gradually company’s operations are more financed by its debts than by equity, this is due to increases in short term finances
4.6.3.2 Interest Coverage 61
Earning Before Interest And Tax --------------------------------------------Interest Expense
EBIT Interest Expense
2009 2383422
2008 4770056
2007 5110287
2006 6299263
653182
789247
860715
1180203
3.65
6.04
5.94
5.34
Interest Coverage Ratio
Interest Coverage 7.00 6.00 Ratio
5.00 4.00
Interest Coverage
3.00 2.00 1.00 0.00 2009
2008
2007
2006
Years
Interpreatation This ratio measure the extent to which earnings can decline without causing financial losses to the firm and creating an inability to meet the interest cost. •
The times interest earned shows how many times the business can pay its interest bills from profit earned.
•
Present and prospective loan creditors such as bondholders, are vitally interested to know how adequate the interest payments on their loans are covered by the earnings available for such payments.
•
Owners, managers and directors are also interested in the ability of the business to service the fixed interest charges on outstanding debt.
62
The company’s major forms of credit are non-interest bearing (trade creditors) which results in the business enjoying very healthy interest coverage rates. In 2006 the company could pay their interest bill 5.34 times from earnings before interest and tax. However this is a massive drop from 5.94 times and in 2001 and 3.69 times in 2009.
PROFITABILITY RATIOS
4.6.4
Profitability is the ability of a business to earn profit over a period of time. Although the profit figure is the starting point for any calculation of cash flow, as already pointed out, profitable companies can still fail for a lack of cash. Note: Without profit, there is no cash and therefore profitability must be seen as a critical success factors. •
A company should earn profits to survive and grow over a long period of time.
•
Profits are essential, but it would be wrong to assume that every action initiated by management of a company should be aimed at maximising profits, irrespective of social consequences.
The ratios examined previously have tendered to measure management efficiency and risk. Profitability is a result of a larger number of policies and decisions. The profitability ratios show the combined effects of liquidity, asset management (activity) and debt management (gearing) on operating results. The overall measure of success of a business is the profitability which results from the effective use of its resources. Following profitability ratios have been calculated I. II.
Gross Profit Margin Ratio Net Operating Income Ratio
III.
Net Profit Ratio
IV.
Return on equity
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4.6.4.1 Gross Profit Margin Ratio Gross profit ------------------ X 100 sale 2009 Sale
2008
2007
2006
160,714,737 123,404,537 122,091,652 107,897,291
Gross Profit
17,596,492
15,047,572
13,408,802
13,864,796
Gross Profit Ratio
11%
12%
11%
13%
Gross Profit Ratio 13% 13% 12% 12% 11% 11% 10% 10%
Gross Profit Ratio
2009
2008
2007
2006
Interpretation •
Normally the gross profit has to rise proportionately with sales.
•
It can also be useful to compare the gross profit margin across similar businesses although there will often be good reasons for any disparity.
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•
The ratio above shows the increasing trend in the gross profit since the ratio has decreased from 13% in 2006 to 13% on 2007. This indicates that the rate in increase in cost of goods sold are less than rate of increase in sales, hence the increased efficiency.
4.6.4.2
Net Operating Margin Operating Income ------------------------ x 100 Sale
Sale Operating Profit Operating Profit Ratio
2009 160,714,737
2008 123,404,537
2007 122,091,652
2006 107,897,291
2383422
4770056
5110287
6299263
1%
4%
4%
6%
OperatingProfitMargin 6% 5% 4% 3%
Operating Profit Margin
2% 1% 0%
2009
2008
2007
2006
Interpreation It is a measurement of what proportion of a company's revenue is left over, before taxes and other indirect costs (such as rent, bonus, interest, etc.), after paying for variable costs of production as wages, raw materials, etc. A good operating margin is needed for a company to be able to pay for its fixed costs, such as interest on debt. A higher operating margin means that the company has less financial risk. 65
In 2006 company has ratio 6% but it has been constantly decreasing with time being to 1%, which very danger for firm.
4.6.4.3
Net Profit Margin
Net Profit after tax
x 100
Net Sales
Sales
2009 160,714,73 7
2008 123,404,53 7
930536
2495840
2678187
3722244
1%
2%
2%
3%
Net Profit after taxes Net Profit Margin
2007 2006 122,091,65 2 107,897,291
Net Profit Margin 4%
Percentage
4% 3% 3% 2%
Net Profit Margin
2% 1% 1% 0% 2009
2008
2007
2006
Year
INTERPRETATION
66
This is a widely used measure of performance and is comparable across companies in similar industries. The fact that a business works on a very low margin need not cause alarm because there are some sectors in the industry that work on a basis of high turnover and
low
margins,
for
examples
supermarkets
and
motorcar
dealers.
What is more important in any trend is the margin and whether it compares well with similar businesses. Net profit ratio indicates that how much net sales are contributing towards generating Net Profit. In 2006 it was 3% and decreased to 2% in 2007. It is decreasing constantly and in 2009, it is only 1%. It shows the firm crises.
4.6.4.4
Return on Equity
This ratio shows the profit attributable to the amount invested by the owners of the business. It also shows potential investors into the business what they might hope to receive as a return. The stockholders’ equity includes share capital, share premium, distributable and non-distributable reserves. The ratio is calculated as follows: Net Profit ------------------Equity
Net profit after tax Share holder equity Return on equity
2009 930536
2008 2495840
16,147,51 6
17,138,84 9
6%
15%
2007 2678187
2006 3722244
16,289,47 5 15,108,692 16%
25%
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Return on Equity 30% Percentage
25% 20% 15%
Return on Equity
10% 5% 0% 2009
2008
2007
2006
Ye ar
INTERPRETATION The ratio shows that how much equity is contributing towards generating Net Income. In 2006 it was 25% and decreased to 16% in 2007 but in 2008 it also decreased to 16% in 2009 it was too much decreased to 6%. This shows that in organization increases debt financing.
4.6.4.5
Earning Per Share
Net profit after tax No. of shares outstanding Earning Per Share
2009 930536
2008 2495840
2007 2678187
2006 3722244
549105
549105
549105
499187
1.69
4.55
4.88
7.46
68
Earning Per share 8.00
E.P.S
7.00 6.00 5.00 4.00
Earning Per share
3.00 2.00 1.00 0.00 2009
2008
2007
2006
Year
4.6.4.6
Break Up value per share Share holder's equity / No. of share outstanding
Share holder's equity No. of share out standing
2009 16,147,516 549105
2008 17,138,849 549105
2007 16,289,475 549105
2006 15,108,692 499187
Break up value per share
29.41
31.21
29.67
30.27
Break Up value per share
Break Up value
31.50 31.00 30.50 Break Up value per share
30.00 29.50 29.00 28.50 2009
2008
2007
2006
Years
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CHAPTER NO.5 SWOT ANALYSIS
70
5.1 SWOT ANALYSIS 5.1.1 Internal and External factors. The Internal component of Analysis is concerned with the basic strengths and weaknesses of the organization. Thus, it depicts the internal environment of the company. The strengths of the company may be its financial or human resources, processes, operational methods, marketing strategies, segmentation techniques or any expertise that the company may feel as its core competencies. Contrary to this, any discrepancies in these factors, at the same time, may become the weaknesses of the company. Hence, it is the internal environment of the company that shapes its business strategies and provides direction to survive in the marketplace. The external component deals with the factors that the company faces in its external competitive environment. These factors are categorized as opportunities available for the company in the market place and the threats strained by its competitors. The opportunities of the company may by its ability to satisfy the ever arising needs of its customers better than its competitors, new available markets, room for setting new operations, falling of barriers due to globalization trend etc. If a firm fails to avail the opportunities as soon as they arrive, these opportunities become threats for that company. This is because your competitors will avail that opportunity in their first attempt and attain first mover advantage over you.
SWOT Analysis is a popular technique used to analyze some company’s present business situation. It provides us with an overview of company’s major strengths and its critical weaknesses. The external opportunities and threats that the company faces in the external environment are also highlighted in this approach. 71
5.2 SWOT Analysis 5.2.1
Strengths:
Government Organization High Cumulative Customer retention rate since the start of operations Sustained growth rate of annual sales turnover. Consistent Quality Vertically integrated. Excellent market image in the local and international market. Highly qualified management. Adequate financial resources. Adopting information technology. Skilled Labor. Broad and motivational vision.
5.2.2
Weaknesses:
High employee turnover Low production capacity. De-motivated Staff. Less promotional activities. Non-Corporative culture. Insufficient benefits for the employees. Stereotype machinery for processing. Communicational gap among different departments.
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No Proper Training to employees Manual Work Mineral Stocks 5.2.3
Opportunities:
Can expand its division such as finding new minerals Can reduce the cost by proper utilization of resources. Can hire well-educated and experienced staff. 5.2.4
Threats:
New plans to take gas from outside the country Buyer need and demand changes. Political instability. Changing geopolitical situation. Change of government policies. Less stocks of minerals
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CHAPTER NO.6 CONCLUSION AND RECOMMENDATION
74
6.1
CONCLUSION
The company earned Rs 1,730,240 thousand pre tax profit, which is decrease than the last year. The revenue from sales was Rs 160,714,737 thousands during the year, which is also decrease than the previous year. This year the company has taken a tax refund of Rs 799,704 thousands from the tax authority on different accounts. Company’s current ratio also decreased 1.19 to 0.82 further more the company has tried its best optimize utilization of all its available resources to the maximum level resulting in improvement of the inventory turnover ration from 218.48 To 231.27 the company need to be taken effective measures to recover its old situation and improve its financial position.
6.2
RECOMMENDATIONS
Before joining this organization I know a little about the organization work, its working system and environment, so I learned a lot from this experience. Based on my experience & observation regarding the operations and policies of organization, there are some recommendations which include short term as well as long term issues for the improvement.
6.2.1
Assess the Performance of employees
There is no efficient method introduced by organization for his assessment of performance of employees. Promotions are completely relying on higher management like managers .’s there can be some sort of favoritism. So to avoid all this, there should be a proper method to judge the employees. 6.2.2
Improve Information Technology System
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Sui Gas Northern Ltd. should immediately improve its Information Technology System. The soft wares currently in use should be made error free as it is the need of the hour. 6.2.3
Computerized Accounting System
As far as accounting is concerned, although the entire system is computerized, but there still involves lots of paperwork. So this should be minimized b acquiring more advanced accounting software 6.2.4
Job Rotation
There is no rotation of employees within departments and cross departments. So the top management should immediately start thinking in terms of rotating the employees in various departments, as this transforms work force into human capital. 6.2.5
Distribute Work Equally
Management should distribute work equally among different employees. Some of the employees are overburdened while some sections are overstaffed. 6.2.6
Improve its Website
Sui Gas Northern Ltd needs to improve its website. More information relating to financial performance and sale of the organization should be available on the website. 6.2.7
Evolve Management Policy
Sui Gas Northern Ltd should evolve a very serious management policy to attract multi national corporations as its clients. This action, if actualized, would not only prove to be highly profit generating, but it would also contribute a lot towards Gohar Textile image building. 6.2.8
Advertise
One of the most pressing needs of the time is to advertise Sui Gas Northern Ltd in the electronic media. Sui Gas Northern Ltd has not, till date, employed advertisement in electronic media as a full fledge marketing tool. I think it is high time that organization does this 6.2.9
Market Survey
The management should make the market survey time to time to get more and latest information about the market factors like the price, demand, current consumer trends etc.
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Reference and source used The following sources are used for preparing this internship report 1Annual Report 2007, 2008, 2009 2Monthly report of financial year 2007,2008, 2009 3Sui Northern Gas website (www.sngpl.com.pk) 4Staff Members of Sui Gas Northern
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