ISLAMABAD, Oct 6: Some of Pakistan's biggest state-run companies will likely be paying out more dividends - a move that will not only cheer shareholders , but benefit the government and partly offset the loss of revenue from its petroleum development levy.

In a sign that higher dividends are in the offing - which will lessen the government's burden from subsidizing consumers of petroleum products - Pakistan Telecommunication Company Limited (PTCL) last week announced its highest-ever payout for the fiscal year ended June 30.

PTCL said it would pay a dividend of Rs5 a share for the last fiscal year, more than the Rs4-Rs4.25 analysts were expecting, and higher than the Rs3.50 paid the previous year.

Since May, the government has cut the petroleum development levy - a key tax on the sale of petroleum products like gasoline and diesel, borne by local consumers - to zero from 6pc-30pc, to avoid worsening of the inflation situation.

Inflation, which hit a six-year high at 9.33pc in July, has been a major threat to Pakistan's nascent economic recovery. Analysts have said inflation could reach 6pc-7pc this fiscal year, higher than the government's 5pc forecast.

For the current fiscal year that began July 1, the government was expecting revenue around Rs47 billion from the petroleum development levy - or 6pc of its total revenue collection. Instead, it has had zero revenue for the fiscal first quarter Sept 30 as a result of absorbing the levy.

"We know exactly the cost of providing this subsidy and how to fill that gap," Ashfaque H. Khan, Economic Adviser to Pakistan's Ministry of Finance and head of the debt management division told Dow Jones Newswires.

"Corporate revenues may be one source to fill this gap," he added. "PTCL's (unusually high) dividend gives a clear signal that the government wants to offset losses they're incurring (from absorbing the levy)," said Mohammed Sohail, research head at Investcap Securities.

PTCL, which is 88pc government owned, is the second-largest listed company on the Karachi Stock Exchange. The government will likely receive Rs6.5 billion more in dividend payouts from PTCL for the last fiscal year than the Rs16 billion it was expecting.

Another state-owned company announced generous dividend payouts last week. Gas distributor Sui Southern Gas Co. said it would pay a dividend of Rs1.50 a share for the year ended June 30 - more than its earning per share of Rs1.49 for the same year, though less than the Rs1.80 dividend it paid the previous year.

Meanwhile, a senior executive at Pakistan Oil & Gas Development Co. - the country's largest exploration concern and the biggest company on the KSE in terms of market capitalization - said OGDC is benefiting from strong oil prices and its dividend policy may well reflect the higher profits to come.

Najam Hyder, Managing Director of OGDC, said: "I would say the dividend is the owner's prerogative. In our case, 95pc of the company is owned by the government."

Both PTCL and OGDC are heavyweights on the KSE 100-share index, and prospects of bigger dividend payouts by the companies could help sustain the market's recent gains, analysts say.

The index has risen 18pc for the year to date on improved corporate earnings, low interest rates and hopes of better ties with neighbouring India - but has shed 5.5pc since its all-time high of 5606 points in April to 5299.47 at Wednesday's close.

On the flip side, analysts say that higher dividend payments by state-run companies could also hurt their expansion plans. "If the company's underlying profitability is better, then I don't see any problem in this route.

However, these companies have strong capital expenditure programmes, which should primarily be financed by their own cash generation," said Sakib Sherani, chief economist at ABN Amro Bank in Pakistan.