Public hearing due: Gas companies seek price revision as losses increase

Govt must act decisively, implement reform proposals without further loss of time

SYED AKHTAR ALI December 17, 2018
A gas cooker. PHOTO: REUTERS

ISLAMABAD: Advertisements for public hearing to determine gas prices for financial year 2018-19 for the two networks of Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) have appeared.

Consumer tariff is later notified by the government based on the costs worked out by the Oil and Gas Regulatory Authority (Ogra) through the public hearing and thus it should be of significant public interest.

While, a full discussion on company tariff can take place only after public hearing, we will limit ourselves to some of the critical issues that must be pointed out at this stage.

Before discussing the main subject, may I request Ogra and the two gas companies’ managements to kindly pay attention to the lack of standardisation in the presentation and even accounting of data as it has appeared. One company is deducting a quantity and the other is adding the same quantity – prior year’s adjustments etc.  Two companies are presenting the same thing on one subject to one regulator and adopt different presentations, as one would be able to readily discern from the advertisements that have appeared. The same is the case in many data that is published in this respect.

The most alarming issue is the very high increase of Rs215.31 in the prescribed price of SNGPL, which is 2.5 times or more of the similar price rise for SSGC. This is despite lower cost of gas from SNGPL of Rs519.88 vs Rs653.4 for SSGC. UFG disallowance of SNGPL is more than six times that of SSGC, although SNGPL losses in 2017 were much lower than those of SSGC.

There should be some explanation. It appears that SNGPL’s utilisation of assets in financial terms is much lower than that of SSGC; larger network alone does not explain the disparity adequately and fully; more on it later. Gas losses, mostly theft actually, of the two companies have increased; SSGC from 6% in 2005 to 13.29 % in 2017 and SNGPL from 6 % to 11.8 % in the same period, with a combined rate of 13.26%.

International data reveals that these losses should not be more than 5%; lowest is UK with 1% losses and worst is Bangladesh with 5% losses. The monetary value of these losses is Rs111.3 billion. If this UFG level is reduced to 5%, one can save Rs70.50 billion annually. The opportunity cost of these losses is almost twice, if LNG rates are used to estimate the monetary value of these losses.

In an environment of high current account deficit and falling exports, such losses are no less than a tragedy.  Who is responsible for these losses? Gas companies, Ogra, successive governments or the governance system in the country? Perhaps all or nobody? Readers should be able to decide on it rather easily .The interesting fact is that losses kept increasing with the advent of the regulator – Ogra.

The National Electric Power Regulatory Authority (Nepra) has been able to identify the composition of these losses into technical losses and theft. Electricity sectors losses is another sham story, together these two sectors are responsible for $5 billion, atleast half of which can be done away with. However, our focus here is the gas sector. Ogra could not do the same; it appointed a consulting company to do this which only identified qualitative factors. The study, however, made some recommendations which have not been paid any attention to either.

There are several components to these losses; technical losses such as leakages in pipelines due to old age and bad maintenance, inaccurate and old meters etc, and theft.

There are management and organisational solutions and as well as technical solutions, both of which may have to be used. Pipes have to be replaced and welds redone. This requires money which the two gas companies do not have due to such losses, some of which are recognised and compensated by the regulator and some are not.

The leakages into the atmosphere are not only a financial and energy loss, it has a negative impact on climate change. Natural gas, chemically called methane, is 35 times more injurious than mostly named carbon dioxide. If a reasonable plan or scheme is prepared to reduce these leakages by renewing defective pipes and connection welds, one may be able to get conventional financing or CH4 saving may be sold in carbon markets as well.

Many years back, I had a conversation on this subject with one of the two gas companies’ top management. Nothing came out, however, since then; lack of commitment and looking for a God-send solution, which repairs all. There is no panacea, small and continuous steps taken persistently deliver ultimately.

Smart meters could be installed as monitoring and control instrument at substation level, which may not be applicable fully, as 40% of the sub-networks are isolated. While, installing smart meters at consumer level may be too expensive and may take a decade to complete, a time scale that is not available in the current emergent situation. There may not be a complete and perfect technical solution, but a good portion of it can be implemented with adequate results. No one tool, or approach, alone will solve the problem.

However, what is not visible in these companies is an easy-going environment and no sense of urgency. With such a wide spread level and scope of theft, how many defaulters are caught per month and how many colluding insiders are charge-sheeted? Senior management has to be made accountable and their services continued on performance. It shouldn’t be just a punishment approach but should also reward the good performers. Now that the ministers are accountable to the prime minister and have to report quarterly, this accountability must flow down.

In an organisational domain, many proposals have been made from dividing the two giants into smaller companies to privatisation, separation of transmission and distribution and retail competition. Governments not finding easy and sure solutions to such problems, start thinking of privatisation as a panacea. Privatisation may provide some relief, if not, all.

Concluding, I must comment on the current prevailing situation of gas crisis. Interestingly, nobody is assuming responsibility, although the CEOs and boards of SNGPL and SSGC have been suspended. I would repeat here my proposal of establishing a gas supply company, which manages the procurement and supply of all gases, local as well as LNG.

Monthly gas pricing has to be adopted along with a new performance based tariff system, replacing the prevailing annual revenue system. And finally, of interest to the readers may be the information that the proposed gas tariff has been computed on the basis of an exchange rate of Rs150 to a dollar. Obviously, it has been done on the instructions of government of Pakistan. The IMF has prevailed.

The writer has been member energy at the Planning Commission until recently

Published in The Express Tribune, December 17th, 2018.

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