Gas prices likely to remain unchanged

Govt may keep prices static for domestic consumers and tandoors

ISLAMABAD:

Amid a looming gas crisis, the government is likely to keep gas prices unchanged for domestic consumers and tandoors.

However, the Petroleum Division has proposed that the Economic Coordination Committee (ECC) should increase the price of gas to be used as feedstock in the fertiliser sector by 14.8%, which will lead to an increase in urea prices by Rs75-100 per bag.

The ECC has been proposed to increase the price of gas used as fuel in the fertiliser sector by 4.4%. The Petroleum Division proposed an increase of 3.9% for commercial consumers.

Furthermore, the Petroleum Division has proposed reduction in gas prices by up to 12.3% for captive power plants, 15.2% for captive plants in textile sector, 5.6% for textile processing, 4.5% for the gas industry, 5.8% for CNG stations, 3.9% for cement and 5.4% for the power sector.

Two gas utility companies - Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) - are operating on the basis of cost-plus return on assets under licence from the Oil and Gas Regulatory Authority (Ogra).

According to Section 8(1) of the Ogra Ordinance 2002, Natural Gas Tariff Rules 2002 and the licence condition, Ogra determines the annual revenue requirement of both gas utilities, which translates into prescribed prices and these are notified in terms of rupees per million British thermal units (Rs/mmbtu).

The said determinations are then forwarded to the federal government for seeking its advice on category-wise sale prices for natural gas within 40 days of the receipt of determinations, according to Section 8(3) of the Ogra Ordinance.

Ogra, in its recent decisions dated July 13 and July 14, 2020, determined the estimated revenue requirement (ERR) for SNGPL at Rs201,371 million and for SSGC at Rs270,181 million for fiscal year 2020-21.

The current category-wise gas sale prices are anticipated to generate a revenue of Rs214,599 million for SNGPL and Rs276,768 million for SSGC.

In SSGC's ERR, Ogra included the company's previous year's revenue shortfall of Rs47,311 million against SSGC's claim of Rs72,902 million. However, nothing out of SNGPL's previous year's revenue shortfall of Rs192,631 million was included in the utility's ERR for FY21.

Ogra, while determining the SNGPL's ERR, observed that the federal government in the past had advised insufficient revisions to the regulator in respect of natural gas sale prices and resultantly SNGPL was unable to meet the shortfall.

Accordingly, Ogra referred the matter to the federal government for adequate revisions under Section 8(3) of the Ogra Ordinance after the inclusion of previous shortfall, as deemed appropriate, considering its socio-economic impact and the sector-specific policies.

In case the federal government decides not to burden the consumers, it may consider subsidy payment to SNGPL to meet its previous shortfall.

Non-inclusion of SNGPL's previous shortfall in ERR will result in carryover of the shortfall in the next financial year unless a decision is made to recover the same through adequate sale price revisions or a direct subsidy.

Taking advantage of the lower prescribed prices and discontinuation of GIDC collection, any possible rise in sale prices for consumers will help mitigate the prior year’s revenue shortfall of the gas companies.

The Petroleum Division has recommended a uniform increase in gas sale prices by Rs50 per mmbtu for all consumers, excluding the domestic consumers and tandoors.

Besides, domestic consumers are being charged a fixed meter rent of Rs20 per month since 2005-06. The Petroleum Division was of the view that meter rent should be revised and it should be fixed at Rs40 per month since SSGC and SNGPL had already made sales at the notified prices of July 2019 in first two months (Jul-Aug) of the current fiscal year.

Moreover, based on the proposed revision in gas tariffs for the next 10 months, SSGC is anticipated to generate estimated sales revenue of Rs287,831 million and SNGPL is expected to record sales revenue of Rs226,041 million.

After meeting the determined revenue requirement for FY21, SSGC will have surplus of Rs17,650 million and SNGPL will have surplus of Rs24,670 million.

Published in The Express Tribune, September 30^th, 2020.

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