Higher non-operating income: State-run energy companies deviating from business norm

TITAS Gas Transmission & Distribution Company's profit grew at 27 per cent year-on-year for the October-December quarter of the FY23, mainly riding on non-operating income.

Its non-operating income was Tk 674.89 million in the quarter while operating income was Tk 543.66 million.

The non-operating income of another listed state-run company Padma Oil was almost four times its operating income for the second quarter of the ongoing fiscal year.

Like TITAS Gas and Padma Oil, non-operating incomes far outstripped operating incomes of other state-owned fuel and power companies, hence comprising a bigger pie of the net profits earned.

This is not a new trend perceived only in FY23. Rather, the financial data of the last five years reveals that the state-owned energy companies heavily rely upon income generated beyond their business operations to maintain their profit growth.

Dhaka Electric Supply Company Limited (Desco) is, however, an exception with operating income higher than interest income.

In cases, non-operating income kept companies from going into the red. For example, Except Eastern Lubricants Blenders reported operating loss in FY22 and FY20, but both the years saw hefty non-operating income of the company helping it to gain a profit.

A former director general of Power Cell, BD Rahmatullah was surprised when informed that the state-run energy companies had recorded higher income from outside the business operations year after year.

"Interest income is not part of the business of state-owned energy companies. It's not rational because the companies' income remains blocked," Mr. Rahmatullah said.

The government had hiked energy prices time to time, he said, which should have been reflected in the operating income. "These companies are supposed to roll out the money to boost services," Mr. Rahmatullah said.

Save Eastern Lubricants, the rest of the companies have not issued stock dividend for a long time.

TITAS Gas distributed 10-26 per cent cash dividends over the last 25 years, and its dividend yields, according to the Dhaka Stock Exchange (DSE), stood between 2.34 per cent and 8.75 per cent, annualised.

The company issued 5 per cent stock dividend in 2012 for the last time, meaning that it has not gone for any expansion for more than a decade.

Padma Oil, which yielded between 5.64 and 7.52 per cent annually over the last five years, also has not executed any expansion plan after 2013.

Both Jamuna Oil Company and Meghna Petroleum issued 10 per cent stock dividend in 2014.

Eastern Lubricants Blenders, which suffered an operating loss of Tk 3.68 million for FY22, issued 10 per cent stock dividend for the year.

Prof. Ijaz Hossain, an energy expert, thinks companies should use available fund for expansion. "The companies either give the money to the government or roll it to improve services."

Noman Ahmed Taffader, company secretary of Padma Oil, said the scope of increasing operating income is very thin for the company as it only gets commission at a flat rate and the government takes away the rest.

"The growth of operating profits of the state-owned oil companies was also hampered by the outbreak of the pandemic when public movement almost came to a halt."

Mr Taffader said the government was trying to ensure public services at affordable prices and it is one of the reasons why operating income was insignificant compared to non-operating income.

On the lack of expansionary attempts, he said such decisions entirely depended on the government.

Market operators said the growth in interest income indicated that the companies had set aside funds for interest income instead of distributing good amount of cash dividends.

Asif Khan, chairman of Edge Asset Management, said the companies' profits outside their core business had stayed high because they had not distributed enough cash dividends.

The companies could have ensured better returns on investment for shareholders, he added.

"Another reason for the growth in non-operating income is that the companies hold cash [in their bank accounts] until it is paid to the government."

An official of IDLC Investments said the recent rise in FDR (Fixed Deposit Receipt) rate helped boost the companies' interest income.

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