02 March 2016
Lower profit earnings in 2105 are partly the consequence of higher natural gas costs, a number of Omani manufacturing firms that depend on gas as a fuel resource for the operations have claimed. Natural gas tariffs, while still among the lowest in the GCC region, were doubled from $1.5 per mmBTU to $3 mmBTU effective from January 1, 2015. The increase was intended partly to reflect the rising economic and opportunity costs associated with natural gas as a feedstock and fuel source, as well as to encourage industries to rationalize consumption of this valuable resource. However, according to several manufacturing firms that are listed on the Muscat Securities Market, the higher costs have hurt their bottom lines.
Majority government-owned Oman Cement identified higher gas costs as one of a number of factors that contributed to a dip in its pretax profit of RO 13.147 million for 2015, down from RO 14.943 million a year earlier, a decline of 12.02 per cent. Jamal Shamis al Hooti, CEO, further commented: "The major hike in gas prices implemented from January 1, 2015 with a progressive increase every year, is bound to have a major impact on our performance compared to the pre-increased period." Raysut Cement, the nation's largest cement manufacturer, also blamed steeper gas costs for its profit decline. Ahmed bin Yousuf bin Alawi al Ibrahim, Chairman of the Board of Directors, stated: "Profit Before Tax stood at RO 25.05 million (in 2015) as against RO 30.39 million in the previous year, a decrease of 17.57 per cent.
The Group operating profit has decreased to RO 26.43 million in the current year from RO 30.47 million in the last year, ie a decrease by 13.26 per cent. This is mainly due to the increase in natural gas price effective from January 1, 2015." The sentiment was echoed by a number of factories reliant on natural gas for their operations. Majan Glass, which operates a major empty glass container manufacturing plant in Sohar Industrial Estate, said the gas price increase added a hefty RO 388,000 to its production costs last year. Gas prices jumped from 20.5 baisa per cubic metre to 42 baisa per cubic metre effective from January 1, 2015, Anwar Ali Sultan, Chairman, said. Al Maha Ceramics, a leading producer of ceramic tiles also based in Sohar, alluded to higher gas costs being partly to blame for a dip its profit earnings.
The Net profit margins of RO 2.4 million for the year were "almost flat" in comparison with the previous year's net earnings of RO 2.4 million, said Masoud Humaid Malik al Harthy, Chairman, citing a decline in revenue and the 100 per cent gas price hike as factors. "The measures taken by the company to optimise the cost of production helped in achieving healthy profit margins," he noted. Significantly, paucity of gas is also a potential issue for the company as it presses ahead with its expansion plans. Arvind Bindra, CEO, stated: "Al Maha had been operating at almost full capacity during the last few years and can benefit from the capacity expansion in future by catering to new customers across different geographies.
The capacity expansion would help the company to keep its cost of production low with higher economies of scale. The additional supply of natural gas is expected in the Sohar Industrial Estate in 2017 and PEIE may allocate additional natural gas to Al Maha for its capacity expansion requirements." Nizwa-based tiles manufacturer Al Anwar Ceramic SAOG said the spike in gas costs has boosted its production costs. "The doubling of natural gas prices effective from January 1, 2015 has adversely affected us. In addition to this, the difficult market situation, particularly in Saudi Arabia, is exerting pressure on our realizations.
We intend to counter this, through better capacity utilization, more stringent cost control and introduction of products aimed at improving realizations," Hussain Ali Habib Sajwani, Chairman, stated. Construction Materials Industries & Contracting SAOG, a leading manufacturer of quick lime, hydrated lime and lime stone products, said it was impacted not only by pricier gas, but also a dearth of it. Gas supplied to its 100 metric tons per day kiln in Sohar Industrial Estate was not only dearer by 100 per cent, but supplies were reduced that cause a production loss of 5,475 metric tons of quick lime for the year, the company said.
© Oman Daily Observer 2016