SNGP, SSGC: Govt allows recovery of Rs18b losses from gas consumers

Move could push up gas tariff

ISLAMABAD: Hardly two weeks before the end of its term, the outgoing government directed the gas sector regulator to recover losses on account of theft worth Rs18 billion from consumers, which could push prices up.

The Economic Coordination Committee (ECC) of the Cabinet approved to issue policy guidelines to Oil and Gas Regulatory Authority to enhance the Unaccounted for Gas (UFG) benchmark from 5% to 7.6% to recoup these losses, said an official of the Petroleum Division after the ECC meeting.

This will burden gas consumers with a payment of around Rs18 billion to cover the cost of gas theft over the past five years and make backdated adjustments in financial accounts of Sui companies. The decision has been taken to provide a relief of Rs11.25 billion to Sui Southern Gas Company Limited and Rs6.54 billion as relief to Sui Northern Gas Pipelines Limited.



The ECC took the decision on a summary of the Petroleum Division that suggested the government to direct the regulator to enhance the UFG benchmark to 7.6% for financial years 2012-13 to 2016-17 in line with a study conducted by a consultant hired by the regulator. The earlier benchmark was 5%.

The Petroleum Division had noted that if the UFG benchmark as proposed in the study is applied on the provisional determinations from fiscal year 2012-13 to 2016-17, the financial impact for SSGC will be Rs11.3 billion and for SNGPL it will be Rs6.54 billion. But Ogra took the stance that the 4.5% benchmark was not provisional and it will not be reviewed again.

The ECC did not take a decision on another summary that sought 33% increase in gas prices for all consumers of the SNGPL system in order to recoup the Rs26.8 billion revenue shortfall.

“In order to address the issue of disparity in the sale price and the revenues of SNGPL and SSGC, the ECC constituted a committee to examine the option of replacing the weighted average cost gas (WACOG) equalisation arrangement with a new arrangement of weighted average sale price (WASP) equalisation arrangement,” according to a handout of the PM’s Office.

The committee will examine all aspects of natural gas sale pricing mechanism and would submit its recommendation to the Cabinet within three months, it added.

Based on the new revenue requirements determined by Ogra, at the current gas sale price, the SNGPL will generate Rs174.23 billion as revenue, which will cause a shortfall of Rs26.8 billion to the entity. Similarly, the SSGC will get Rs166.2 billion as revenue at the existing prices and it will generate a Rs17.2-billion surplus.

“The position warrants a 33% across the board increase in gas sale prices on the system of SNGPL which has been worked out based on the revenue generation of the remaining six months,” according to the Petroleum Division. The division had pleaded that the 33% increase in prices would eliminate the current year’s projected revenue deficit of Rs26.8 billion while the surplus on the SSGC system will increase to Rs44.2 billion.

The SNGPL is already facing an accumulated shortfall of Rs87.6 billion that pertained to previous years as determined by Ogra while finalising the final revenue requirements for fiscal year 2016-17. The revenue shortfall of Rs87.6 billion was created due to the government’s decision not to increase gas prices fully in the past.

In the petition for revenue requirements for fiscal year 2018-19, the SNGPL has requested Ogra to take into account the accumulated shortfall of previous years while determining the final revenue requirements. The company has warned that if appropriate action is not taken, the total revenue shortfall would increase to Rs114.4 billion.

The Petroleum Division had proposed to the ECC that the prices may be increased across the board by 33% from January 1 or at least by 16.5% to recover half of the revenue shortfall. The other options it gave were increasing the prices for all consumers by Rs135 per mmbtu to cover the full shortfall or Rs67.50 to recoup half the losses.

The last two options were that either the Finance Ministry give Rs26.8 billion subsidy or change the weighted average cost formula of gas equalisation. Due to weighted average cost, the SNGPL was required to transfer Rs14.5 billion to the SSGC. But it would reduce the SSGC revenue surplus by the same amount.

The Petroleum Division had suggested that the ECC may constitute the weighted average cost gas equalisation arrangement with a new arrangement of weighted average sale price equalisation agreement.

The ECC conditionally approved another summary of the Petroleum Division that sought a staggering recovery of Rs18 billion from SSGC over a period of five years. In fiscal year 2009-10, Ogra while determining the annual revenue requirement allowed a UFG benchmark of 7% as against the initial benchmark of 5%. Ogra maintained the 4.5% benchmark till fiscal year 2014-15. The public gas utility companies challenged this move in the courts but could not get relief.



The ECC also considered the issue of allocation of site to private LNG developers for establishment of LNG terminal. It was decided that only those sites at Port Qasim would be allocated for the establishment of LNG floating terminal which have been declared safe after undertaking Quantitative Risk Assessment.

The meeting approved a proposal to allocate 35mmcfd Mari shallow gas and 40mmcfd of Mari Deep gas to Pakarab Fertilizers Ltd. (PFL) in order to allow it to optimally utilise its available installed capacity, encourage indigenous production and to lessen reliance on imported urea.

The ECC also approved five localities for SNGPL and six for SSGC for setting up LPG Air Mix Plants.

The ECC also approved an amount of Rs1.14 billion as three-month salary (Jan to March, 2018) for the employees of Pakistan Steel Mills Corporation.

Published in The Express Tribune, May 18^th, 2018.

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