MARI GAS COMPANY

LIMITED

Presented by

Sumaira Yousuf

Sabiha Bibi

Presented to

Mr. Faisal Rizwan

Why Cease to Grow When Opportunity Awaits You….

1
CONTENTS
INTRODUCTION & COMPANY STRUCTURE...................................................................................2
Key Highlights.............................................................................................................................2
Electricity generation in Pakistan & Current Context..................................................................3
SCOPE OF THE PROJECT..............................................................................................................5
INITIAL COST...............................................................................................................................5
Company’s current WACC...........................................................................................................6
New Project WACC......................................................................................................................6
CASH FLOWS...............................................................................................................................7
SCENARIOS..................................................................................................................................7
BASE Case................................................................................................................................7
Worst Case...............................................................................................................................9
BEST CASE.............................................................................................................................10
NPV, IRR & MIRR........................................................................................................................11
Base Case..............................................................................................................................11
Worst Case.............................................................................................................................12
BEST CASE.............................................................................................................................13
CONCLUSION.............................................................................................................................14
Benefits for MARI GAS............................................................................................................14
Limitations................................................................................................................................14
REFERENCES.............................................................................................................................15
APPENDIX..................................................................................................................................16
Calculation of KAPCO Beta through Pure Play Method...........................................................16
Calculation of KAPCO Beta through Pure Play Method

2
INTRODUCTION & COMPANY STRUCTURE

MARI gas is one of the largest national exploration and production companies of Pakistan.MGCL’s Habib
Rahi gas reserve base which is its main stay was discovered by the company when it operated as a branch of
Esso eastern Inc. in 1957

MGCL primarily operated as a production company till 2001, developing the discovered Habib Rahi
reservoir in phases of supply & gas to the new reservoir in phases for supply of gas to the new fertilizer
plants which were being built in the country for urea production.

It is registered as a public limited company, listed & traded on all three stock exchanges of Pakistan.

Amount
Shareholder %age
(Rupees in Million)
Fauji Foundation 40% 147.00
Government of Pakistan 20% 73.50
OGDCL 20% 73.50
General Public 20% 73.50
Total 100% 367.50

As of 2009, it has a total of Rs. 20,451.502 million, out of which 39.2% is financed through equity, & the
rest through debt.

Mari Gas has a huge potential of expand its business in producing electricity. This project would demonstrate
it.

Key Highlights

• According to Pakistan Power Infrastructure Board (PPIB), the power demand in the
country is likely to grow at 12% every year1
• The Government of Pakistan (GOP) guarantees the performance obligation of its entities
such as the power purchaser, fuel supplier, etc. and provinces. GOP also provides
protection to sponsors and lenders in case of termination of the project. The
Government of Pakistan guarantees protection against changes in taxes & duties and
specified political risks.

1 www.ppib.gov.pk

3
 • Any variation in price of fuel would be passed through to the power purchaser. Similarly
any additional taxation over and above the Tariff assumptions is liable to be passed on
to the power purchaser.

Electricity generation in Pakistan & Current Context

Electricity in Pakistan is generated, transmitted, distributed and retail supplied by two vertically integrated
public sector utilities: Water and Power Development Authority (WAPDA) for all of Pakistan (except
Karachi), and the Karachi Electric Supply Corporation (KESC) for the City of Karachi and its surrounding
areas. There are around 19 independent power producers that contribute significantly in electricity generation
in Pakistan.

For years, the matter of balancing Pakistan's supply against the demand for electricity has remained a largely
unresolved matter. Pakistan faces a significant challenge in revamping its network responsible for the supply
of electricity.

Electricity generation in Pakistan has shrunk by 50% in recent years due to an overreliance on hydroelectric
power. In 2008, availability of power in Pakistan fall short of the population's needs by 15% Pakistan was hit
by its worst power crisis in 2007, after the assassination of Benazir Bhutto and the following riots.
Production fell by 6000 Megawatts and massive blackouts followed suit. Load Shedding (deliberate
blackouts) and power blackouts have become severe in Pakistan in recent years. The main problem with
Pakistan's poor power generation is raising political instability, together with rising demands for power and
lack of efficiency.

Hydroelectricity is the most efficient way to cope with the demand of electricity, but since the construction of
Kala Bagh dam has shaped to a political issue, apparently the country has to rely on using fossil fuel, which
is already meeting 65% of the total generation2.

2 http://en.wikipedia.org/wiki/Electricity_sector_in_Pakistan

4
SCOPE OF THE PROJECT

Growing demand

Supply and Demand of Electricity in Pakistan

Supply and Demand Position: 2008-2020 (MW)
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Existing Generation 15,903 15,903 15,903 15,903 15,903 15,903 15,903 15,903 15,903 15,903 15,903 15,903 15,903

Proposal / Committed 530 4,235 7,226 10,115 10,556 13,307 13,520 14,607 16,134 18,448 18,448 18,448 18,448
Generation
Total Existing/Committed 16,484 20,138 23,129 26,018 26,459 29,210 29,423 30,510 32,037 34,351 34,351 34,351 34,351
Generation
Expected Available Generation 13,146 16,110 18,503 20,814 21,167 23,368 23,538 24,408 25,630 27,481 27,481 27,481 27,481

Demand (Summer Peak) 16,484 17,868 19,352 20,874 22,460 24,126 25,919 28,029 30,223 35,504 34,918 37,907 41,132

Surplus/Deficit Generation -3,338 -1,758 -849 -60 -1,293 -758 -2,381 -3,621 -4,593 -8,023 -7,437 -10,426 -13,651

Source: Private Power and Infrastructure Board - Govt. of Pakistan

INITIAL COST

To purchase a 100MW turbine, it would cost approximately 100 million USD. This would
incorporate the cost of various auxiliaries: Gas treatment units, pressure regulators,
transformers, breakers, generator to produce electricity & a switchyard to dispatch power to
the utility company. It would take approximately six months to put up the turbine.

A turbine normally lasts for 30 years. The depreciation method used to manage turbine is
straight –line, which is also used by MGCL for managing its other assets. The depreciation per
year would amount to RS. 286.666666 million Per year.

5
 Company’s current WACC

Company’s current WACC

WACC= kd(1-T)(wd)+ks(we)

15(0.392)(.35)+20.30(0.4025)

2.058+8.12

10.178

New Project WACC

Un-levered
% of Beta of Beta of the
Rf Rm % of Debt Equity KAPCO Project ke kd WACC
0.
12% 7% 0% 100% 0.151 0.151 11 14 0.11
11.
12% 7% 10% 90% 0.151 0.156 21 14.5 11.03
11.
12% 7% 20% 80% 0.151 0.164 17 15 10.89
11.
12% 7% 30% 70% 0.151 0.173 13 15.5 10.81
11. 10.8
12% 7% 40% 60% 0.151 0.186 07 16 0
10.
12% 7% 50% 50% 0.151 0.203 90 16.5 10.81
10.
12% 7% 60% 40% 0.151 0.230 80 17 10.95
10.
12% 7% 70% 30% 0.151 0.274 62 17.5 11.15
10.
12% 7% 80% 20% 0.151 0.362 30 18 11.42
8.
12% 7% 90% 10% 0.151 0.626 90 18.5 11.71

6
CASH FLOWS
The current tariff charged by HUBCO in Rs.4 KW/hr. A 100MW gas turbine produces 770,880 MW/hr. 12%
of the total time in a year is required to maintain it, as a result 770880,000 KW/hr (100MW *
24hrs*365*0.88) would be produced in a year.

The government makes contracts with IPPs to buy a specified amount of electricity every year. However, the
tariff agreement is normally renewed every 5 years

SCENARIOS
BASE Case
An agreement is made with the government that specifies tariff for 5 years. If the tariff remains the same for
the coming ten years then:

1- 10 Years
Sales 3083.52
-Variable Cost 246.682
Contribution
Margin 2836.84
-Fixed Cost 61.6704
EBIT 2775.17

7
 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
EBIT 2775.16 2775.1 2775.1 2775.1 2775.1 4316.9 4316.93 4316.9 4316.9 4316.93
8 7 7 7 7 28 3 3
Interest 1376 1376 1376 1376 1376 1376 1376 1376 1376 1376
Exp
Savings 1399.16 1399.1 1399.1 1399.1 1399.1 2940.9 2940.93 2940.9 2940.9 2940.93
8 7 7 7 7 28 3 3
- - -286.67 -286.67 -286.67 -286.67 - -286.67 -286.67 - -286.67
286.666 286.66 286.67
Depreciati 67 667
on

Earning 1685.83 1685.8 1685.8 1685.8 1685.8 3227.5 3227.59 3227.5 3227.5 3227.59
before 467 3 3 3 3 9467 9 9
taxes
- 5.90042 5.9004 5.9004 5.9004 5.9004 11.296 11.2966 11.296 11.296 11.2966
Taxes 133 2 2 2 2 5813 6 6
35%

Earning 1679.93 1679.9 1679.9 1679.9 1679.9 3216.2 3216.3 3216.3 3216.3 3216.3
after taxes 424 3 3 3 3 9808

+ 286.666 286.66 286.66 286.66 286.66 286.66 286.667 286.66 286.66 286.667
Depreciat 666 7 7 7 7 6666 7 7
ion

Net Income 1966.60 1966.6 1966.6 1966.6 1966.6 3502.9 3502.96 3502.9 3502.9 3502.96
091 6475 6 6

8
 Worst Case
The only factor that would change the level of sale generation is that competitors might start to sell at a price
lower than Rs. 4. If they go down to Rs 3, then the case would be:

1- 5 Years 5-10 Years

Sales 3083.52 2312.64
-Variable Cost 246.682 246.682
Contribution
Margin 2836.84 2065.958
-Fixed Cost 61.6704 61.6704
EBIT 2775.17 2004.288

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
EBIT 2775.168 2775.1 2775.1 2775.1 2775.1 2004.2 2004.29 2004.2 2004.29 2004.29
7 7 7 7 9 9
1376 1376 1376 1376 1376 1376 1376 1376 1376 1376
Savings 1399.168 1399.1 1399.1 1399.1 1399.1 628.28 628.288 628.28 628.288 628.288
7 7 7 7 8 8
- -286.67 -286.67 -286.67 -286.67 -286.67 - -286.67 -286.67 -286.67 -286.67
286.66
Depreciation 7
Earning 1685.834 1685.8 1685.8 1685.8 1685.8 914.95 914.955 914.95 914.955 914.955
before taxes 67 3 3 3 3 5 5
- 5.900421 5.9004 5.9004 5.9004 5.9004 3.2023 3.20234 3.2023 3.20234 3.20234
Taxes 33 2 2 2 2 4 4
35%
Earning 1679.934 1679.9 1679.9 1679.9 1679.9 911.75 911.752 911.75 911.752 911.752
after taxes 24 3 3 3 3 2 2
+ 286.6666 286.66 286.66 286.66 286.66 286.66 286.667 286.66 286.667 286.667
Depreciation 66 7 7 7 7 7 7
Net Income 1966.600 1966.6 1966.6 1966.6 1966.6 1198.4 1198.42 1198.4 1198.42 1198.42
91 2 2

9
 BEST CASE

After 5 years & at the end of the agreement on tariff, due to inflation or perhaps because the competitors
have increased their prices, the rates might rise to rupees 6.Then the cash flows would be as follows:

1- 5 Years 5-10 Years

Sales 3083.52 4625.28

-Variable Cost 246.682 246.682

Contribution
Margin 2836.84 2065.958

-Fixed Cost 61.6704 61.6704

EBIT 2775.17 4316.928

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year Year Year
8 9 10
EBIT 2775.168 2775.1 2775.1 2775.1 2775.1 4316.928 4316.9 4316.9 4316.9 4316.9
7 7 7 7 3 3 3 3
Interest 1376 1376 1376 1376 1376 1376 1376 1376 1376 1376
Exp
Savings 1399.168 1399.1 1399.1 1399.1 1399.1 2940.928 2940.9 2940.9 2940.9 2940.9
7 7 7 7 3 3 3 3
- - - -286.67 - - - - - - -
286.66667 286.67 286.67 286.67 286.66667 286.67 286.67 286.67 286.67
Depreciati
on
Earning 1685.8346 1685.8 1685.8 1685.8 1685.8 3227.5946 3227.5 3227.5 3227.5 3227.5
before 7 3 3 3 3 7 9 9 9 9
taxes
- 5.9004213 5.9004 5.9004 5.9004 5.9004 11.296581 11.296 11.296 11.296 11.296
Taxes 3 2 2 2 2 3 6 6 6 6
35%
Earning 1679.9342 1679.9 1679.9 1679.9 1679.9 3216.2980 3216.3 3216.3 3216.3 3216.3
after taxes 4 3 3 3 3 8

+ 286.66666 286.66 286.66 286.66 286.66 286.66666 286.66 286.66 286.66 286.66
Depreciati 6 7 7 7 7 6 7 7 7 7
on

10
 Net 1966.6009 1966.6 1966.6 1966.6 1966.6 3502.9647 3502.9 3502.9 3502.9 3502.9
Income 1 5 6 6 6 6

NPV, IRR & MIRR

Base Case

Years
Projec
t 0 1 2 3 4 5 6 7 8 9 10
- 1966.6 1966.6 1966.6 1966.6 1966.6 1966.6 1966.6 1966.6 1966.6 1966.6
860
0
Discou
nt
Amoun 1744.9 1601.9 1445.7 1304.8 1177.6 1062.8 959.2 865.76 781.37 705.20
t 1 04 62 39 53 63 63 09 26 99

Cash 11649.
Inflows 54
Cash
Outflo
ws 8600
3049.5
NPV 38

IRR 19%

Findin 3207.9 3378.9 3157.9 2951.3 2758.2 2577.8 2409. 2452.3 2104.2
g FVs 46 85 3 36 58 11 17 87 62 1966.6

26964.
F.v 69

PV 8600

MIRR 12%

Worst Case

11
 Years
Proje
ct 0 1 2 3 4 5 6 7 8 9 10
- 1966.6 1966.6 1966.6 1966.6 1966.6 1198.42 1198.42 1198.42 1198.42 1198.42
86
00
Disco
unt
Amou 1601. 1445. 1304. 1177. 647.6 584.5 527.5 476.1 429.7
nt 1774.91 904 762 839 653 949 622 832 581 456

Cash
Inflow 9970.81
s 188
Cash
Outflo
ws 8600
1370.81
NPV 188

IRR 15%

Findin 3615.51 3378. 3157. 2951. 2758. 1570. 1468. 1494. 1282. 1198.
g FVs 3887 985 93 336 258 884 116 452 309 42

22876.2
FV 0519

PV 8600

10%
MIRR

12
 BEST CASE
P
r
o
j
e
c 1
t 01 2 3 4 5 6 7 8 9 0
1 1 1 1 1 3 3 3 3 3
9 9 9 9 9 5 5 5 5 5
6 6 6 6 6 0 0 0 0 0
6 6 6 6 6 2 2 2 2 2
. . . . . . . . . .
6 6 6 6 6 9 9 9 9 9
- 6 6 6 6 6
D
i
s
c
o
u 1 1 1 1 1 1 1 1
n 1 6 4 3 1 8 7 5 3 1
t 7 0 4 0 7 9 0 4 9 2
7 1 5 4 7 3 8 2 1 5
r 4 . . . . . . . . 6
a . 9 7 8 6 2 6 1 8 .
t 9 0 6 3 5 0 6 1 0 1
e 1 4 2 9 3 3 7 8 3 4

C
a
s
h

I
n
f 1
l 5
o 0
w 9
s 7
C 8
a 6
s 0
h 0
O
u
tf

13
lo
w
s
6
4
9
6
.
N 9
P 9
V 8
I 2
R 4
R %

F
i
n
d 3 3 2 2 4 4 4 3 3
i 6 3 3 9 7 5 2 3 7 5
n 1 7 1 5 5 9 9 6 4 0
g 5 8 5 1 8 1 1 8 8 2
. . 7 . . . . . . .
F 5 9 . 3 2 6 2 2 1 9
V 1 8 9 3 5 7 8 6 7 6
s 4 5 3 6 8 1 2 2 1 4

3
6
3
6
4
.
F 3
V 7
8
6
P 0
V 0
M
I 1
R 6
R %

Wors
Scenarios Best Base t

14
Probabilit
y 0.25 0.5 0.25
5046.1 337.4
NPV 9383.614 38 12
ENPV 4953.3255
Standard
Deviation 3199.661777
Co
variance 0.645962349

15
CONCLUSION
To meet the substantial demand of electricity, MGCL has a great scope to expand its business
profitably & adding value to the country as well.

If company obtains debt at 16%, then the company’s ability to cover interest expenses
would decrease by 60%. But because the company has been outperforming in the past,
banks are willing to give loan at KIBOR rate i.e. 14%. Hence company would face any new
risk in paying of its interest expense it won’t affect its credit rating as well.

Earning per share would increase from 7.42 per share to 7.44 per share. The company is
currently using 30% dividend payout ratio. The new project is not adding significant risk to
the corporation; hence the % of earnings paid as dividends won’t have to be increased. The
P/E ration doesn’t have a obvious change either. The new WACC of the company is
estimated to be 10.47.

Benefits for MARI GAS

1. Ease of financing: The Company is currently financing from two banks: Bank Al Falah
Limited & Habib bank limited at interest rate of 14.27% %14.66% respectively.
2. WAPDA would be the only customer, so it would be relatively easy to satisfy them.
3. Since MARI Gas would be their own supplier, no premium would be paid on gas.
4. In the agreement with WAPDA, the tariff paid is charged in dollars, so inflation won’t
have impact on the sales.
5. The supply to WAPDA would be on contract basis, so revenue from 25 years would be
specified before hand.

Limitations
• The report is as reliable as accuracy of the data
• The government might charge fee to the company for getting into a new venture.
Access to this & relevant knowledge was not possible

16
REFERENCES
➢ www.sbp.org.pk
➢ www.kse.com.pk
➢ www.igisecurities.com.pk/
➢ www.ppib.gov.pk
➢ www.wikipedia.org/
➢ www.brecorder.com

17
APPENDIX
Calculation of KAPCO Beta through Pure Play Method
Months (April, May, June, July)
Reuturn on Return on
Date KAPCO Market
-
0.0360
3 6,931.90 46.65 4 -0.01458
-
0.0325
4 7,191.09 47.34 3 -0.00921
-
0.0114
5 7,432.88 47.78 4 0.004626
-
0.0153
6 7,518.93 47.56 2 -0.00398
0.0402
7 7,635.88 47.75 68 0.007809
0.0060
8 7,340.30 47.38 75 -0.00084
-
0.0422
9 7,295.98 47.42 7 0.008936
-
0.0323
12 7,617.96 47 3 0.015777
0.0050
13 7,872.49 46.27 61 -0.00921
0.0033
14 7,832.85 46.7 01 0.007551
0.0178
15 7,807.08 46.35 62 0.002813
-
0.0160
16 7,670.08 46.22 2 0.003038
-
0.0136
20 7,794.95 46.08 1 0.014085
0.0087
21 7,902.48 45.44 23 -0.00656
0.0343
22 7,834.14 45.74 23 0.008155
0.0325
23 7,574.17 45.37 05 0.002209

18
 -
0.0374
26 7,335.72 45.27 2 0.009815
0.0375
27 7,620.87 44.83 67 0.018169
-
0.0114
28 7,344.94 44.03 6 0.00617
0.0218
29 7,430.08 43.76 37 0
0.0296
30 7,271.30 43.76 01 0.161976
-
0.0027
15 7,062.25 37.66 6 0.000266
-
0.0162
14 7,081.83 37.65 6 -0.00449
0.0102
13 7,198.87 37.82 74 -0.00578
-
0.0005
12 7,125.66 38.04 4 0.00502
0.0009
11 7,129.51 37.85 25 -0.01304
-
0.0238
8 7,122.92 38.35 4 0.002877
0.0074
7 7,296.90 38.24 97 -0.00701
0.0140
6 7,242.60 38.51 26 0.014756
-
0.0049
50 7,142.42 37.95 1 0.003437
0.0006
40 7,177.64 37.82 68 -0.00264
0.0148
18 7,172.85 37.92 56 0.015805
0.0010
19 7,067.85 37.33 1 -0.00692
0.0130
20 7,060.72 37.59 42 -0.00503
-
0.0246
21 6,969.82 37.78 9 -0.0097
-
0.0038
22 7,146.24 38.15 1 0.0114
25 7,173.57 37.72 - -0.02229

19
 0.0004
6
-
0.0016
26 7,176.89 38.58 6 -0.01907
-
0.0136
27 7,188.84 39.33 2 0.002038
0.0015
28 7,288.13 39.25 83 0.005894
0.0091
29 7,276.61 39.02 91 -0.0134
0.0119
1 7,210.34 39.55 62 0.002535
0.0193
2 7,125.11 39.45 38 0.012577
0.0162
3 6,989.94 38.96 54 0.009326
-
0.0023
4 6,878.14 38.6 9 0.00547
0.0003
5 6,894.62 38.39 8 -0.00878
-
0.0274
8 6,892.00 38.73 8 -0.00309
0.0056
9 7,086.78 38.85 09 0.003098
-
10 7,047.25 38.73 0.0063 -0.01576
0.0050
11 7,091.96 39.35 52 -0.00857
0.0148
12 7,056.31 39.69 45 0.003033
0.0116
15 6,953.09 39.57 59 0.00841
-
0.0286
16 6,872.96 39.24 8 0.00102
0.0034
17 7,075.93 39.2 26 -0.01259
0.0017
18 7,051.77 39.7 1 -0.00874
-
0.0024
19 7,039.73 40.05 8 -0.00793
0.0048
22 7,057.26 40.37 1 0.004479
23 7,023.48 40.19 - -0.0005
0.0003

20
 4
-
0.0144
24 7,025.89 40.21 4 -0.00961
-
0.0047
25 7,128.83 40.6 8 -0.00344
-
0.0148
26 7,163.04 40.74 1 -0.06581
-
0.0303
1 7,270.72 43.61 6 -0.03432
0.0036
2 7,498.34 45.16 22 -0.00878
-
0.0089
3 7,471.28 45.56 2 0.006851
-
0.0014
6 7,538.49 45.25 4 -0.02855
0.0097
7 7,549.37 46.58 99 -0.003
0.0062
8 7,476.11 46.72 05 0.004299
-
0.0096
9 7,430.01 46.52 8 0.004101
-
0.0236
10 7,502.66 46.33 8 -0.00494
0.0069
13 7,684.65 46.56 43 0.020381
-
0.0070
4 7,631.66 45.63 9 0.002417
-
0.0037
15 7,686.15 45.52 9 -0.01578
-
0.0062
16 7,715.42 46.25 6 -0.00431
0.0069
17 7,764.01 46.45 22 0.013086
-
20 7,710.64 45.85 0.0092 -0.03413
-
0.0026
21 7,782.23 47.47 4 0.001054
22 7,802.81 47.42 - 0.005726

21
 0.0077
6
0.0103
23 7,863.86 47.15 37 0.002978
0.0093
24 7,783.40 47.01 81 0.001278
0.0047
27 7,711.06 46.95 28 0.017114
0.0182
28 7,674.77 46.16 82 0.006761
0.0060
29 7,536.98 45.85 36 0.010134
-
0.0296
30 7,491.76 45.39 8 -0.01326
31 7,720.93 46

BETA
of
KAPC
O
0.243
901

22