Gas utilities. Photo: file
ISLAMABAD:
Gas utilities have opposed a proposal to scrap the guaranteed asset-based return formula and have asked the government to continue the current pricing regime.
The government had tasked the Oil and Gas Regulatory Authority (Ogra) with restructuring the two public gas utilities by doing away with the fixed asset-based return. According to officials, the regulator hired consultancy firm KPMG to review the formula and it has submitted its report.
As the gas pipeline network continues to expand, prices and profits of the utilities have jumped, placing a burden on consumers. However, the network expansion has caused gas scarcity in the country.
Sui Northern Gas Pipelines Limited’s (SNGPL) operating cost surged from Rs66 billion in financial year 2019-20 to Rs94 billion in 2023-24 but at the same time, its earnings swelled from Rs19 billion to Rs38.9 billion despite the drop in gas supply.
The utilities – SNGPL and Sui Southern Gas Company (SSGC) – are of the view that the current asset-based return could not be abandoned. They point out that several benchmarks like the unaccounted-for-gas (UFG) are linked to the asset-based return regime.
However, scores of industries have repeatedly criticised the fixed rate of return. They argue that profits of the utilities are rising, whereas supplies are shrinking because of the expansion of pipeline network.
Industrialists suggest that for the application of a uniform UFG benchmark to all stakeholders, a law firm should be engaged to review the legal framework. The consultant had also offered a plan to resolve the gas-sector circular debt within three months.
At present, gas companies are facing a circular debt of Rs2.6 trillion, which has plagued the entire energy chain. Liquefied natural gas (LNG) has been a factor behind the accumulation of circular debt as SNGPL has to pay billions of rupees for LNG supply by Pakistan State Oil (PSO).
Regarding the circular debt, the SSGC management stated that KPMG had completed its work and submitted a report. “The key issue is the lack of clarity about the source of cash inflows while they expect the circular debt issue to be resolved in three months,” said the company management in a corporate briefing on Friday.
The low recovery of bills by SSGC has also contributed to the swelling circular debt. Gas losses in Balochistan comprise 40% of the total losses, though the utility has been able to reduce losses in recent times.
In the briefing, SSGC representatives revealed that the management planned to add 50,000 re-gasified LNG connections starting July 2026. RLNG is around 30% cheaper than liquefied petroleum gas (LPG).
The company has received 12,000 applications while 6,000 connections are currently being provided to multi-storey buildings.
The management mentioned that RLNG was supplied to industrial consumers by blending it with natural gas, with the ratio varying during winter months.
Ogra had set the UFG level for SSGC at 12.07% (34.80 billion cubic feet) for FY25. However, the company is contesting this determination, believing it has strong grounds to reduce the UFG to 10% (29 bcf). Every 1 bcf reduction leads to savings of Rs1 billion.
The company noted that its earnings were usually higher in the September quarter because the UFG level increases during winter due to harsh conditions, particularly in Balochistan. As SSGC operates under a regulated regime, it initially prepares accounts based on expected numbers, with actual adjustments made at year-end.
Its mega projects include the rehabilitation of 2,500 km of distribution network across Karachi and upper Sindh areas with an estimated capital expenditure of Rs28 billion. SSGC also plans a transmission pipeline at a cost of Rs10 billion. It expects annual capital expenditure of Rs40 billion to continue in the coming years, subject to the availability of cash flow.
Gas supply to captive power plants has declined from 180 million cubic feet per day (mmcfd) to 100 mmcfd following imposition of an off-grid levy of Rs500 per million British thermal units (mmBtu), in addition to the gas price of Rs3,500 per mmBtu.
The management emphasised that consumers were seeking uninterrupted power supply, which remained unresolved in the grid; therefore, they expected captive plant demand to stay at current levels.
SSGC has signed agreements with K-Electric and National Steel Complex (formerly Tuwairqi Steel Mills) for supply of 45-60 mmcfd of gas, which could potentially bridge the gap left by captive customers, who were previously high-paying clients.
With the Jamshoro Joint Venture Ltd (JJVL) plant coming online, it is expected to contribute Rs2 billion to SSGC’s earnings. However, only 50% of this, or Rs1 billion, will flow to the company’s bottom line, in accordance with regulations related to the non-operating income.
Under SSGC Alternative Energy (non-regulated), the company is planning to source 10 mmcfd from exploration and production (E&P) companies, where SSGC will act as a transporter. The company highlighted that its tax expenses remained high in FY25 due to a 0.75% turnover tax.
