No decision yet on regulatory issues faced by SSGC

Public utility has not been able to unveil income statements for the past three years

KARACHI: The fate of Sui Southern Gas Company (SSGC), one of the most actively traded companies on the Karachi Stock Exchange (KSE), hangs in the balance as no decision has been taken on the lingering regulatory issues that will decide its revenue and bottom line, senior officials told The Express Tribune.

The public utility, which is 53% owned by the government, has not been able to release annual statements for the last three fiscal years, yet its share has steadily risen 64% to Rs54 since November 2014 on hopes that the company would see a significant rise in profit.



“This is all speculation at the moment,” said Khalid Rehman, SSGC’s Managing Director, referring to the active trading in the company’s stock. “There is a public hearing on August 25 after which we would hopefully be able to finalise accounts for 2013 and 2014.”

The revenue and income of SSGC, and its sister concern Sui Northern Gas Pipelines Limited (SNGPL), are regulated by the Oil and Gas Regulatory Authority (Ogra) through a complex set of rules.

At least once a year, the gas utilities submit a detailed list of expenses to be made on serving millions of consumers across the country.

It includes components like the cost of gas they purchase, the money spent on maintenance of old pipelines and construction of new ones and 17% to 17.5% return on fixed assets that they are allowed.

All these costs are clubbed together to calculate the gas tariff, which provides the revenue.



But SSGC also has certain incomes like late payment surcharge, earnings from LPG producer Jamshoro Joint Venture Limited, a meter manufacturing plant and sale of condensate. As per the company’s last submission to the regulator, this income comes to around Rs7.23 billion annually.

SSGC wants Ogra to treat this as a non-operating income and not offset it against the tariff, something that would automatically increase return for the shareholders for the same amount. The regulator has consistently disallowed this.

Debate about gas losses

Another issue relates to the gas lost in the pipeline system, known as unaccounted-for-gas (UFG) loss. SSGC says that cost of the 9% gas, which leaks or gets stolen, should be adjusted in the tariff. Ogra insists that losses should not exceed 4.5%.

Although the company has taken stay orders from the Sindh High Court (SHC) for three subsequent years, stopping Ogra from taking any decision on the matter, there is no certainty on the issue.

As a matter of fact, Khalid Rehman says that due to non-revision of the tariff, SSGC’s revenue has been falling short in meeting even the cost since January 2015.

Since the company has not prepared financial statements for the last three years, it is hard to judge its health. However, it remains to be seen how much of the cost it has already incurred would be allowed to be recovered.

Rehman says that it is “very unlikely” that the final tariff to be approved by Ogra will fall short in meeting the company’s cost.

On his part, Ogra Chairman Saeed Ahmed Khan says that nothing conclusive has come out of the discussions on regulatory issues.

But he says that if the authority determines that SSGC has charged more money from consumers, then it would have to pay the price. “We adjusted UFG losses in SNGPL’s tariff. We recovered it from their profits. So we have done this before.”

Generally, the KSE administration seeks explanation from companies when a stock sees unusual movement on the basis of information that is not publicly available. But the KSE has kept a mum on SSGC.

Published in The Express Tribune, August 15^th, 2015.

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