Govt assures SNGPL its return will not go down under reforms

Published: December 3, 2017
Division of gas companies into separate transmission and distribution firms and changes to the tariff regime are part of the reforms. PHOTO: REUTERS

Division of gas companies into separate transmission and distribution firms and changes to the tariff regime are part of the reforms. PHOTO: REUTERS

ISLAMABAD: Sui Northern Gas Pipelines Limited (SNGPL) has disclosed that the federal government has given it assurances that neither the company nor its shareholders and employees will be worse off in the wake of implementation of proposed gas sector reforms.

“The assurance has been given by the Ministry of Energy (Petroleum Division) in a letter addressed to the SNGPL managing director,” the company said.

The revelation was made by an SNGPL delegation during the first consultative session held by the Oil and Gas Regulatory Authority (Ogra) in Peshawar recently. Similar sessions are scheduled to take place in Islamabad, Lahore, Karachi and Quetta in the next two weeks.

As part of the reforms, Ogra proposed a new formula featuring a varying rate of return for the public gas utilities – SNGPL and Sui Southern Gas Company – instead of the current fixed return. However, Ogra Chairperson Uzma Adil Khan clarified that the regulator had not taken any final decision, which would be taken after consultation with the federal government, Sui gas companies and other stakeholders. Reports suggest that a similar assurance had also been given to the gas utility earlier during meetings of the Gas Leadership Committee headed by Prime Minister Shahid Khaqan Abbasi.

Regulator starts consultation on gas tariff structure

According to the government assurance, the new rate of return, to be set by Ogra, cannot be less than the return allowed to Sui gas transmission and distribution companies under their licences. As a result, whether the rate of return is variable or fixed, it will not have any negative consequences for the shareholders and employees of the two companies.

Government and company officials believe that the gas utilities have faced financial crunch following change in the ratio of bulk and retail consumers.

A few years ago, the bulk consumers comprised 70% of the total whereas retail consumers had the remaining 30% share. However, the situation has reversed now as bulk consumers are standing at 30% whereas retail consumers have jumped to 70%, which leads to higher transmission and distribution losses and erodes profits of the utilities.

In a bid to curb losses and provide better consumer services, the previous government of Pakistan Peoples Party had floated the idea of splitting the two utilities. Multilateral donors – the Asian Development Bank and the World Bank – also pushed the government to undertake critical reforms in the energy sector.

Division of gas companies into separate transmission and distribution firms and changes to the tariff regime are part of the reforms.

An important feature of the proposed reforms is the hiring of a transaction adviser, who will recommend structure of the splitting process. The adviser will ensure that the gas companies remain sustainable and commercially viable and their shareholders and employees enjoy at least the same benefits as they are receiving now.

During the consultative session, the SNGPL team told Ogra that appointment of the adviser would be made only when the company was assured that it would continue to earn at least the same rate of return after the reforms as it was receiving now.

Government rules out gas price increase from July

Ogra also appeared to acknowledge the government’s stance that Sui gas companies should not be adversely impacted under the new tariff regime. The purpose of the series of consultative sessions is to ensure that views of those expected to be affected by the proposed reforms are heard. However, the federal government will finalise the tariff regime.

Some salient features of the reforms are that they should be implemented in phases over a period of one to two years, Sui companies earn a return on the federal government’s grants and leave room for the revaluation of assets.

Published in The Express Tribune, December 3rd, 2017.

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