Good day, thank you for standing by. Welcome to the PETRONAS Chemicals Group Analyst Briefing for quarter ended June 30th, 2022 conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question- and- answer session. To ask a question during the session, you will need to press star one one on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Zaida Alia Shaari. You may begin.
Thank you, Crystal. Good evening, ladies and gentlemen. Salam alaikum. Welcome to PETRONAS Chemicals Group Berhad analyst briefing for the second quarter financial year 2022 financial results. I'm Alia, Head of Investor Relations. Thank you again for joining our call this evening. You should by now be able to access and download the financial results from the Bursa Malaysia website, as well as the presentation materials in our corporate website or in the links provided in the event invitation.
Ladies and gentlemen, based on our usual quarterly results format and flow, today's briefing by the PETRONAS Chemicals Group senior management will be led by our Managing Director, CEO, Mr. Mohammad Yusri. Our CFO, Mr. Azli, will brief on the details of the financial performance, followed by Mr. Kabir, our Chief Manufacturing Officer, who will touch on our manufacturing operations.
This will be followed by a brief on the market by our Chief Marketing Officer, Mr. Shakir. Also in attendance from our management lineup is Mr. Akbar, our Head of Special Projects. Ladies and gentlemen, we are very pleased today to have with us our Independent Non-Executive Directors, Dato' William Toh, as well as Dr. Zafar Abdulmajid Momin. Following the briefing by the senior management, we will open the line for questions and answer session. Without further ado, I shall now hand you over to our CEO, Mr. Yusri. Thank you.
Thank you, Alia. Good evening. Good day, ladies and gentlemen. Thank you for joining us today. Let's look at the first slide. The first half of 2022 has proven to be quite a ride, with major geopolitical conflict changing the energy outlook overnight back in March. Energy prices rose on supply fears while economies grappled with rising inflationary pressures.
Economic growth has slowed and fears of potential recession is weighing in. GDP for the first half of the year came in at 3.52% compared to the robust 7.32% in the same period last year. In China, the continued fight for zero COVID-19 is causing much concern with continued lockdown impacting market sentiment. PMI dipped to 52.80 against 54.50 in the first half of
Against 54.50 in the first half of last year on slower manufacturing sector and continuing supply chain disruptions. Crude oil averaged 66% higher at $108 per barrel on supply limitation amidst the Russia-Ukraine war and better demand on the overall improved COVID-19 situation. With higher crude oil price, healthy demand amidst supply chain challenges, petrochemical product prices were higher across the board compared to the first half of 2021. Which brings me to the performance highlights for the quarter. Go to Slide 2. Ladies and gentlemen, the turnaround maintenance plan for the year was quite extensive.
We started the plant turnarounds for our plants in the Olefins and Derivatives segment, namely the propylene plant at PC Olefins, PC Derivatives and PC Aromatics, and followed by the Fertilizers and Methanol segment for PC Methanol Plant Two and PC Fertilizers Sabah in quarter two. With such major shutdown, plant utilization was lower at 79% compared to 94% last year.
Production volume declined to 4.4 million tons against 5.2 million tons last year. Nonetheless, our sales volume was only lower at 3.5 million tons against 4.1 million tons last year. On the market front, prices were higher across all products, driven by higher energy prices and overall improved demand. Following the higher product prices, we recorded MYR 12.3 million in revenue, 29% higher than last year. EBITDA and PAT were both higher at MYR 4.4 billion and MYR 3.9 billion respectively on expanded product spread. EBITDA margin remains healthy at 33%. Now I'll have Azli next, who will take you through the details of financial performance.
Thank you, Yusri. Ladies and gentlemen, good evening, and thank you for joining us. Let's start with the group's financial performance on Page 3, beginning with the comparison of the second quarter 2022 against second quarter 2021. For quarter two, we saw slowing economic growth alongside recession concern and inflationary concern amidst the ongoing Russia-Ukraine war.
Further to that, we also seen the Chinese government unwavering stance on the fight against COVID-19 with a renewed zero COVID restriction. Crude oil price rose 67% to average at $114 per barrel in quarter two 2022, compared to $68 per barrel in quarter two 2021, mainly due to supply limitation amidst the Russia-Ukraine war. Additionally, demand was robust, spurred by the global summer travel season.
Following the higher crude oil prices, petchem product prices were strong on higher feedstock costs, improved demand year on year following the economic recovery. On our operational front, we undertook higher turnaround this year compared to what we did last year, which saw our plant utilization rate came down to 72% against 97% in the same quarter last year.
As a reminder, we undertook turnaround shutdown at two of our largest plant, which is PC Methanol Plant Two, which has the design capacity of 1.7 MTPA, as well as PC Fertilizer Sabah with a capacity of 1.2 MTPA. Additionally, our turnaround for PC Aromatics that started in first quarter 2022 spilled over into quarter two. We also experienced some maintenance issues at our urea facility in Bintulu, and the rectification and maintenance work also impacted our utilization rate.
The good news is all our turnaround and maintenance activities has been completed since then. All in, year-on-year, our production and sales volume were lower by 26%. Despite the lower production volume, group revenue grew 17% from MYR 5.6 billion in quarter two, 2021 to MYR 6.6 billion this year, mainly on high product prices. In terms of EBITDA declined 8.6% to MYR 2 billion against MYR 2.2 billion last year. This is mainly due to lower sales volume but partially offset by improved product spread. At 30%, our EBITDA margin was lower in comparison to 38% achieved in the same quarter last year.
Our PAT for the quarter was comparable at MYR 1.87 billion against MYR 1.85 billion in the same quarter last year. Moving on to the group financial performance against preceding quarter, that is against quarter one this year. During the quarter, Petchem product prices were assessed higher than preceding quarter on higher energy prices while demand was mixed. On our operations, I had mentioned earlier that we undertook heavy planned turnaround shutdowns in quarter two, 2022. As such, plant utilization was lower quarter-on-quarter at 72% versus 87%. Both production and sales volume took a hit, decreasing at 70% and 60% respectively. Nonetheless, group revenue is comparable at MYR 6.6 billion.
In terms of EBITDA declined 19% from MYR 2.4 billion-MYR 2 billion, in line with lower sales volume, partially offset by improved spread. PAT was lower by MYR 200 million, or 9.7%, in line with lower EBITDA, partially offset by lower tax expenses following the recognition of deferred tax asset, or DTA, on business losses at PC Aromatics.
Next, let's look at our performance for the first half of 2022. The excitement of the economic recovery we saw in the first half of 2021 has waned as soaring energy prices eroded customer purchasing power. The Russia-Ukraine war saw inflation rising, and the extended COVID-19 related lockdown in China caused further disruption to supply chain and cost pressures.
Brent crude prices averaged 66% higher against first half of 2021, and petchem product prices were assessed higher across all products on supply shortage, higher crude oil prices, and freight charges. Our plant utilization was lower year-on-year due to the heavy turnaround activities that I have mentioned earlier.
Although group revenue jumped 29% to MYR 13.2 billion from MYR 10.3 billion last year. With improved product spread, EBITDA improved 14% to MYR 4.4 billion against the same period last year. EBITDA margin declined to 33% on lower sales on ethane-based product. PAT was higher at MYR 3.9 billion compared to MYR 3.3 billion last year. Now let's move to balance sheet and cash flow. We first look at the balance sheet on Page 4.
Year to date, our total asset increased from MYR 46.5 billion to MYR 50.3 billion, primarily due to higher cash and cash equivalent by MYR 2.5 billion due to cash contribution from higher CFFO. Also contributed by the higher total asset, higher property, plant and equipment, mainly contributed by capital investment in our petchem project in Pengerang.
Now let's turn to our cash flow on Page 5. Cash generated from operating activities increased by MYR 1 billion to MYR 4.3 billion, mainly due to higher net cash generated from operation in line with higher EBITDA. During the period, net cash used in investing activities was higher by MYR 58 million to MYR 706 million, mainly due to higher purchase of property, plant and equipment for the turnaround that we are undertaking this year.
Net cash used in financing activities for the period was higher by MYR 1.1 billion at MYR 1.7 billion, mainly due to higher dividend payment to shareholders of the company. At the end of the period, our cash balance remained strong at about MYR 19 billion. That is all for the financial performance for the second quarter, 2022. I'm handing over the session to Kabir for the manufacturing highlights. Over to you, Kabir.
Thank you, Mr. Azli. Good evening, everyone. Kabir here. Briefly on quarter two 2022. We recorded lower plant utilization in quarter two in view of heavy turnaround and plant maintenance activities. We have completed all turnaround and plant maintenance activity for 2022. PU for quarter two 2022 was recorded at 72%, lower than previous and corresponding quarter following higher TA and shutdown activity at fertilizer and methanol segment.
All other plants in Olefins and Derivatives segment remain stable, translating into highest ever quarterly ethylene production for the group since quarter one 2019. We will continue to enhance our reliability program, and we are expecting to continue optimum operation for the remaining two quarters of 2022 in view of no major shutdown activity until year-end. Olefins and Derivatives segment.
Quarter two plant utilization for Olefins and Derivatives segment were higher than previous quarter at 89% following stable operation, post-turnaround and feedstock activity at PC Olefins and PC MTBE. Both of our ethylene crackers at PC Olefins and PC Ethylene have been running healthier during the quarter, resulted to highest ever quarterly ethylene production since quarter one, 2019. We are expected to run our operation at optimum level with no major shutdown activity for O&D for the remaining two quarters in 2022.
Fertilizer and Methanol segment. For the Fertilizer and Methanol segment, we achieved 62 plant utilization rate in quarter two, 2022. As mentioned during last quarter briefing, the reduction in utilization rate were mainly due to turnaround activity at our Fertilizer and Methanol segment, namely PC Fertilizer Sabah and PC Methanol Plant 2.
We have completed our heavy turnaround cycle this year, and we will continue to optimize our plant capacity towards year-end. Apart from that, we carry out maintenance activity at ABF PC Ammonia to immediately rectify reliability issue which could be worsened if delayed. We were also hit by water supply issue at PC Fertilizer Kedah and were shut down to prioritize water supply to domestic consumer. All issue were rectified safely without major rework. We expect for fertilizer and methanol segment to continue running at optimum operation for the remaining two quarters, post-turnaround and shutdown activity. That sums up the operational review for the quarter. I hand over to Shakeel for the commercial update.
Thank you, Kabir. Good evening. Shakeel here. Let's proceed with the market highlights. In quarter two, 2022, product prices were mostly higher compared to previous quarter, mainly impacted by tight supply resulting from the Russia-Ukraine war. Demand was generally subdued, impacted by lower margins due to higher feedstock costs and prolonged China lockdowns as a result of the zero COVID-19 policy.
However, F&M did see a more stable demand contributed by countries promoting food self-sufficiency. Ethylene price is forecasted to be soft on the back of cracker outages and reduced operating rates amidst weak downstream demand due to high feedstock costs and downstream plant turnarounds. Supply is expected to be short with some crackers outages and reduced operating rate in Northeast Asia. However, it is likely to be further balanced upon cracker restarts in China.
Demand in Northeast Asia remains limited on weak margin, with some producers likely to further lower the operating rates of underperforming downstream PE and MEG plants, further hampered by uncertainty of China lockdowns. Moving on to polymers. LDPE price is forecasted to be softening amidst bearish demand and ample supply. Demand will still be limited by China's economy uncertainty due to the zero COVID-19 policy.
However, market demand may potentially improve, driven by restocking activities prior to China's Golden Week holiday in October. Next, for MEG. Ethylene glycol price is forecasted to be soft on the back of sluggish demand due to high inventory and overall reduced buying due to recession fears. Supply is anticipated to be short as production cutbacks may continue in the coming months in response to low profitability. It may possibly drop further as more units in China are expected to shut down.
As for paraxylene, price is forecasted to be soft, mainly due to lackluster demand from downstream purified terephthalic acid, PTA, and polyester markets. Supply is to be short due to several turnarounds planned in Northeast Asia. Persistent high freight costs may also limit cargo supply into China. Now, let's proceed with the fertilizer and methanol segment, starting with urea. Urea price is forecasted to be soft due to slow demand in India market despite export restrictions of China cargos.
European markets has shown higher prices with the euro against U.S. dollar and high gas costs amid Russia gas supply cut. No planned turnaround or shutdowns for Middle East and sea plants in the outlook period. Moving to ammonia. Ammonia price is forecasted to be soft amid ample supply and steady demand. Supply to be ample with additional volume expected from new Middle East plants starting from August.
Demand is steady, although further improvements in market sentiment are hampered by squeezed margins for downstream products. Lastly, on methanol, price forecasted to be on correction mode as crude prices start to stabilize amidst improved supply and steady demand. Higher supply in Northeast Asia as inventories at China ports are increasing with more volume from Russia and Iran. This may also encourage straight flows from other regions into sea for better net back. However, demand is expected to be stagnant due to uncertainty in China as the world's biggest importer amidst zero COVID-19 policy. That's all from me. Back to Yusri.
Okay.
Thank you.
Thanks, Shakeel. Moving on to our sustainability metrics. This is Page 11 on the deck. Ladies and gentlemen, we are on phase of continuous improvement on our sustainability journey. Aside from planning projects towards sustainable growth, we continuously monitoring our day-to-day operations and the impact on our sustainability pillars. Starting with a review on the economy pillar, focusing on our business operations.
On the operations and commercial front, we have spoken of low utilization for the first half of the year due to the turnaround and maintenance activities, which has resulted in lower production volume and subsequently lower sales volume. In a similar trend with last quarter, with lower production volume, our environment pillar, where we measure and monitor our impact to the environment, was negatively impacted.
Against both the corresponding and preceding quarter, our energy intensity was higher at 18.11 gigajoules per ton of production, as we recorded lower production volume. Similarly, at 3.47 million tons of CO₂ equivalent emitted, our first half of 2022 GHG emissions was a touch higher against 2021. Subsequently, because of the lower volume, GHG intensity also increased in first half of 2022 as compared to the same period last year.
At 74% recycling rate, it is better than the first half 2021, with a higher amount of waste sent for recovery post the turnaround activities that we did. Our target for the year-end is to hit 80% recycling rate. We have put in extra efforts to increase our recycling rate in order to meet the target by the said timeline.
On our social risk programs, which we have recently commenced, and we will then have a better reach in our next engagement and a better color. On governance, social risk assessments target for 2022 is to close the gaps identified in the previous assessment. To date, we have closed 36% of those identified gaps.
All that I have shared are part of our net zero carbon emissions roadmap, and key in our commitment towards creating positive economic, environmental, and social impact, and lowering our carbon footprint. Our immediate commitment for 20% of emission reduction by 2030 remains on track with continuous tracking and upgrade at our manufacturing units. There will be more to share on this in near future, so bear with us, and we will continue to share our progress with you.
Ladies and gentlemen, before I end the presentation, a brief recap of our 2022 focus areas and our expectation for the rest of 2022. On growth delivery, the Pengerang integrated complex commissioning activities have progressed very well since May, and the startup of petrochemical facilities have commenced in phases since July. All these have been progressing well and as planned.
On our extended value chain project, namely nitrile butadiene latex plant in Pengerang and the specialty ethoxylates and polyol plants in Kerteh, they are also progressing well ahead of schedule. On the proposed acquisition of Perstorp Holding AB, we are currently sorting out the merger filings.
I expect to complete the transaction in early quarter four. Next, looking at the business environment, concerns are rising, seeing the slower economic growth and fears of recession amidst rising inflationary pressure. Uncertainty remains as there seems to be no resolutions as yet on the Russia-Ukraine war. Crude, though, is seeing some stability, but the price may be weakened on slower economic growth and weaker global oil demand, combined with increasing supply from Libya and OPEC.
Given the weaker outlook, it is crucial that we continue to manage our operations to minimize the risk under our control, optimize our manufacturing assets, and continue to maximize the value of our sales. On the operation front, as we have stated before, we have completed all our planned turnaround in both O&D and F&M segment with no major HSE incidents.
We will continue driving the operations on all our plants. We will continue with our strict HSE culture to continuously ensure the health and safety of our employees and contractors to ensure that uninterrupted operations will continue while observing strict COVID-19 SOP at all our premises and during all activities. With regards to our net zero carbon aspirations, the team continues to monitor ways to cut back our impact to the environment with new technologies and options that can be implemented at our facilities that will bring the best values. That brings me to the end of our presentation. Let's open the floor for question and answer.
Thank you, Yusri . Crystal, over to you to open the line for questions.
Thank you. As a reminder, to ask a question, please press star one one. Again, to ask a question from the phone line, please press star one one. Please stand by while we compile the Q&A roster. Our first question comes from Piyanan Panichkul from UBS. Your line is now open.
Hi. Thanks for the opportunity. Actually, I want to ask three questions, please, and most of them are the outlook question. On the PIC commercial operation, it's good to hear that you know the startup is coming along on target. When will you start commercial operation, meaning you would book revenue and depreciation of the project?
When should we expect that? Secondly, I want to ask about utility costs. What have you experienced in terms of utility price in 2022 so far? Do you see this change in the second half and in 2023 at all? What should we expect in terms of utility cost inflation? Finally, in terms of Perstorp profitability, could you maybe elaborate a bit more about the sensitivity of Perstorp profit to European gas price? Thank you.
Hi, Piyanan Panichkul. This is Azli. Thank you for your three questions. Let me address your first question, Piyanan Panichkul. In terms of depreciation, for the Pengerang Integrated Complex, we anticipate we will start depreciating the complex as and when it reaches the commercial operation date. Right now, as we speak, we target it will be sometime in December this year, where we'll start depreciate the complexes.
As Yusri has mentioned, the startup of the petrochemical unit has progressed since July. Already certain units of the project has already produced on-spec product, and we already started to sell some of those products. This will be recorded as part of our progressing revenue moving forward. I hope that answers your first question.
With regards to the second question on the impact of utilities, we do you know realize and recognize that the increase of utilities to PCG plants is basically due to the increase in feed gas to produce such utilities, more so on electricity and industrial gases. However, in terms of net impact to PCG, it's manageable because this increase is also supported with higher product prices, which I mentioned earlier, able for us to absorb any increase in utilities prices from the higher product prices that we have realized.
With regards to Perstorp, I think I may need to be cautious here because we don't want to border on a gun-jumping issue because we are yet to be a shareholder of Perstorp, so we can't really comment for and on behalf of Perstorp. But if you look at their first quarter result, which they have prepared and published in May recently, so they do provide some analysis what is the impact of the Russia-Ukraine war to their energy security, to the feedstock security to Perstorp's plan globally. I think I'll leave it at that, Pang. I hope you can look back at Perstorp's report where they do have a thorough assessment on this.
Thanks, Mohd Azli Ishak. May I clarify your answer a bit more on the utility cost? Just, please help me understand, is the government subsidizing utility in Malaysia, in this year? What should we expect for next year, please?
On utilities, Pan, we mainly procure utilities from our sister company, if you wanna call it, PETRONAS Gas Berhad. Typically all these utilities that we procure are not subsidized by the government. It's on market pricing.
I think, Pan, Yusri here. For Malaysia, the gas for utilities are not subsidized. All the consumers pay market price. That market price floats with the global market price.
I see. Thank you so much. Thank you.
Thank you, Pan.
Thank you. One moment for our next question. Our next question comes from Ahmad Maghfur Usman from Nomura. Your line is open.
Hi. Good evening, everyone. Just two questions on my side. First of all, currently, there was a Forex translation loss on the JV side. I was just wondering, for which JV would that be? That's the first one. The second one, I think I have decided not to ask because it relates to Perstorp. I'll just leave it at that one question. Thank you.
Okay.
Thank you, Ahmad.
Thank you, Ahmad. Thank you for your understanding. I mean, in terms of the JVs, I think that the impact to the Forex loss is pretty minimal, because most of our JVs are already debt-free. If you realize in overall PCG Group, we are actually recording a Forex gain because of the revaluation because most of our proceeds are in dollars. As ringgit weakens, we record you know higher gains from translation. I hope that covers that, Ahmad.
I'm sorry. Which JV co is this, by the way?
Can I get back to you on this, Ahmad, or once I check with my team?
Okay, sure. Thank you.
Thank you. One moment for our next question. Our next question comes from Jian Yuan Tan from Affin Hwang. Your line is open.
Hi, management team. Good evening. Just one question from my end. Can I get an update on how's product demand been generally when your business team communicate with your customer globally? Do you see demand softening or probably customer actually been holding back purchase now that ASP is actually on a downward trend, of course with all the noise around a potential recession as well as a slowdown? Just a follow-up, I know it's probably not an apples to apples comparison, but could you share back in 2008, 2009 during the crisis how much did the sales volume actually decline in general? Thank you.
Ladies and gentlemen, please stand by. Your conference will resume momentarily. Sir, please stand by with your question. Again, please stand by. Your conference will resume momentarily. Once again, please stand by. Your conference will resume momentarily. Once again, ladies and gentlemen, please stand by. Your conference will resume momentarily.
Hello?
Hello.
Hi, yes, speakers. We can hear you, and we still have the caller up.
Hi.
Yeah. Sorry, we lost the line just now.
I'll probably just repeat my question. Just one question from my end. Can I get an update on how the product demand been generally, whether you see demand softening or probably customer actually been holding back purchase now that ASP has been on a downward trend? Of course, this is with the noise of a potential recession as well as a slowdown globally. Could you probably share, you know, back in 2008, 2009, during the crisis, how much did your sales volume actually decline in general? Thank you.
Okay, Mr. Tan, Shakeel here. I think you were saying product demand softening. Moving forward, the demand very much depends on recovery in China market. I think we have highlighted earlier with the zero-COVID policy that is impacting the market. From what we hear, the likelihood of market recovery could be in quarter four this year. Very much look forward for that. Apart from that, you were saying 08, 09.
Yeah.
2008, 2009. I think we don't expect the impact will be as much as 2008, 2009. It's a softening of market rather than a disruption of demand. It just depends on how the price moves currently, and we do expect market to recover hopefully by quarter four.
Okay. Thank you.
Thank you. As a reminder, to ask a question, please press star one one. One moment for our next question. Our next question comes from Kang Hong Meng from UOB-Kay Hian Holdings Limited. Your line is open.
Hi. Greetings, guys. Can you hear me please from in here?
Yes. Yes, yes.
Hi. Okay. Thanks for the call. I have three quick questions. First question is, you mentioned there are some unplanned maintenance issues in your various plants. May we know if you're able to quantify the volume impact or EBITDA impact from the unplanned issues back in the second quarter? That's the first question. Second question is, in terms of your plant utilization guidance going forward, what would be your worst case scenario? I mean, do you still see, I mean, despite the fact that, you know, we are in the recession risk and so forth, are you still looking at more than 72%? What is the worst case for the second half of this year at least?
My third question is more related to the Sabah sales tax. I think recently the Sabah minister said they are going to implement this in August for ammonia and urea. I'm just wondering, my initial thinking is that maybe this is more impact to you, but hopefully you can give some assessment and guidance related to the Sabah sales tax as well as whether your Sabah operations are also affected in that. Thanks.
Okay. Kang, just to clarify, can you repeat your second question again?
Oh, second question. Your worst case plant utilization guidance?
Oh.
For the rest of the half year.
I think let's address your first question on, with regards to unplanned shutdown. These are mainly in ASEAN Bintulu Fertilizer, Bintulu. As you know, they've undertook a scheduled plant turnaround, quarter four last year. There are some teething issues that reoccur following that turnaround. Unfortunately, I cannot give you the exact opportunity loss on EBITDA as well as volume, because that's basically our policy on that. I can say that those particular issue has been resolved and we take advantage of taking the maintenance work to address the backlog in the plant. For the month of July, our plant utilization has climbed up to 88%.
Bear in mind that during the early part of July, PETRONAS Chemicals Methanol Sdn. Bhd. Plant 2 is still ramping up. Moving forward, as the guidance for August onwards, we were ramping up on our plant utilization and we still aim for our full year plant utilization to be above 90%. Right? With regards to your second question, we don't normally assume for worst case. We prepare for the worst case, but we don't guide our metrics based on worst case scenario. We're all looking on a very best case at the moment. Right? Your third question with regards to Sabah sales tax. You're right. We have received that directive from Sabah State Ministry of Finance to levy a 5% urea and ammonia sales tax.
We are assessing this together with our PETRONAS Group tax, as well as discussion with the Sabah Ministry of Finance. We do have some analysis in terms of the tax exposure to PCG Group. It will not, you know, adversely affect our tax as a group, but it will have impact in terms of our sales tax for PC Fertilizer Sabah as well as PC Methanol Labuan, PCML. Because this involve for any transaction with regards to selling or distributing urea ammonia in Sabah.
Got it.
Yeah.
Meaning to say, just to double confirm, all for both of those plants, the Sabah Fertiliser and the Labuan Methanol, any of those sales are, they are all for export, right? Not for domestic usage, right?
No.
So-
I need to correct you, Kang.
Yeah.
The plant in Labuan are not exposed to Sabah-
Sabah.
....sales tax because it's Labuan.
Okay.
It's not Sabah.
Yeah.
They governs under separate tax jurisdiction. Only applicable to the Sabah sales tax are the P C Fertiliser Sabah Sdn Bhd in Sipitang only.
For the Fertiliser Sabah, is it correct to say that 100% of that of the revenue from there is for export markets, or is there any domestic market that potentially you could be excluded from the sales tax?
From what I understand, Kang-
Yeah, yeah.
...It's slightly different.
Confirm, yeah.
Slightly different from the Sarawak sales tax. Sarawak sales tax only levied on export. For Sabah is pretty much 100%. What we are discussing with the Sabah Ministry of Finance is basically to see any net off of the sales tax. Because you will see that, you know, PCML, our marketing arm, will buy the urea ammonia from PCFS.
Yes.
There should not be any double tax on those entities, so it will be a net effect.
Correct.
That is basically the mechanics that we are discussing with our PETRONAS Group tax as well as the Sabah State Ministry of Finance.
Okay, thank you very much. One more quick question, just to double check on the earlier follow-up on PCG. The recognition pattern, you mentioned that the depreciation targeted for December, right? Is that also the same guidance for all your costs, let's say, OpEx and everything will. Are you looking at the same target recognition from December? You know? Yeah.
Yes. As you know, most of the CapEx costs already been booked under our project in progress. Once we achieve commercial operation date, those will be reclassified into property plant equipment, into our fixed assets and start depreciate.
Okay. Got it. Thank you so much. That's all, that's all from me.
Thank you, Kang.
Thank you.
As a follow-up from Ahmad's question earlier, we do not see any JV registering Forex loss for this quarter. If Ahmad, you can call back and to probably, you know, provide us where you get this information, that would be very appreciated. Okay.
Thank you. One moment for our next question. Our next question comes from Mayank Maheshwari from Morgan Stanley. Your line is open.
Hello, sir. Thank you for the call. Firstly, a big picture question around decarbonization first. I think yesterday, or last week actually, Tenaga announced some plans around usage of hydrogen in the Terengganu region on hydrogen with PETRONAS. Is there something that you guys are basically looking at as well from your perspective around decarbonizing your plants using hydrogen? Can you just comment on that before I kind of ask a few questions around the quarter?
Yes. Mayank, Yusri here. I think we are always on the lookout for reducing our carbon footprint in terms of decarbonizing. Currently, as you know, most of our power comes from either cogeneration or power that we got from the grid. Any options that we see that is viable moving forward to address, you know, our efforts to decarbonize, we will be looking towards that also. Yeah.
Yeah, Mayank, if I could add on that, I think- That particular initiative are driven entirely by PETRONAS. As you know, Mayank, there's a specific hydrogen unit in PETRONAS who are pursuing this initiative. Of course, being part of a larger PETRONAS family, we can take advantage of this initiative as and when it suits us. As you know, we do produce hydrogen from various of our plants, and we can take advantage of this initiative.
Okay. No, this is exactly where I was a bit would be interesting to get your comments, was because they have given a timeline of 2029 on the electricity production from their plants, correct? And obviously we have lesser details around where is the hydrogen coming from, et cetera. That's where I was kind of coming through of how at the PETRONAS Chemicals level, you guys are basically helping out both from offtake perspective as well as from a hydrogen supply perspective.
Currently, there's on a supply perspective, there is a pure what they call this collaboration between our PETRONAS Chemicals unit in terms of producing. It will be green hydrogen, which we have no capacity to produce as PCG. On an offtake perspective, as I said, should that make sense in decarbonizing our operation, we would definitely look at it.
Got it. Okay. Coming to the quarter now in terms of a few questions. One, in terms of, I think, extraordinaries on inventory gains, et cetera. If you can just help us understand of how that's impacted the overall profits, for this quarter.
Can you repeat that again, Mayank? Extraordinary.
The inventory related gains in terms of net profit that you would have booked this quarter because prices had gone up for olefins as well as partly even in fertilizers. Any inventory related gains that you have booked this quarter for the quarter.
I think in terms of inventory, number one, volume-wise is pretty much minimal. Although because of the higher product prices, we do not see much of inventory gains, since we are running very optimal on inventory volume. We currently quantify the inventory gain, and it will not be as material as we thought. There also minimal in terms of write-down, because there are few write-downs, mainly because of the turnaround that we undertook in fertilizer methanol plants.
The second question, sir, was more related to because your interest cost right now for RAPID is not yet reflected on your balance sheet. How much that has been capitalized for the first half of this year?
Okay. If I'm not mistaken, Mayank, it's around $150 million per year. I can revert to you after this.
Okay. Sure. Perfect. Thank you, sir. That's all my questions.
Thank you.
Thank you, Mayank.
Thank you.
Thank you. One moment for our next question. Our next question comes from Sumedh Samant from J.P. Morgan. Your line is open.
Hi. Thank you for the presentation. I have two questions. First, on the O&D utilization in second quarter, can I please check why it was below 90% when you had a full quarter usage in this quarter? Also want to check on the F&M division utilization, just to make sure the 62% was a result of unplanned shutdown and nothing else. That was my first question. On second question, basically, can you please give us guidance again on your Perstorp completion and if there are going to be any changes in the acquisition price because of the changes in circumstances, if at all? Thank you.
I think in terms of plant utilization, specifically on the fertilizer methanol segment, as Yusri has mentioned earlier and it's also supported with Kabe, those low plant utilization for fertilizer methanol are mainly due to the scheduled plant turnaround. When you see in our both plant two methanol in Labuan at 1.7 million tons per annum capacity, coupled with our urea plant in Sabah with a 1.2 million tons of capacity down for a period of 40 or 45 days. That is basically the reason, the impact of the low plant utilization for fertilizer methanol segment.
Yeah.
With regards to updates on Perstorp acquisition, what Yusri has mentioned earlier, we are currently finalizing the merger filing, and we have gotten majority of the jurisdiction that we required for the purpose of merger filing. Once that final merger approval has been obtained, we will convene our extraordinary general meeting. Few days after that, we will pursue with deal completion. We anticipate this will happen in early October this year.
Can I check if there are going to be any changes in pricing at all because of the changing circumstances?
Can you elaborate on the change of circumstances?
I don't know. I mean, geopolitical risk or let's say your assumption of profit is higher than what it is today. I mean.
Yeah.
For whatever reason, are there any circumstances in which you can see a change in prices, in the amended price? Thanks.
Thank you, Sumedh, for the clarification. We do not foresee any change of circumstances. We don't also see any change of the purchase price or as well as the enterprise value that we have announced when we execute the deal in May.
Got it. Thank you so much.
Thank you, Sumedh.
Thank you. I am showing no further questions from our phone lines. I'd like to pass the call back to management for any closing remarks.
Ladies and gentlemen, thank you again for joining us this evening to share with us your reports once published. If you need to clarify any other matters, please reach out to the IR team via email or phone. Thank you again. Good evening.
Thank you.
Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.