SSGC seeks 45% hike in gas price

Says tariff increase needed to meet revenue requirement for FY23

ISLAMABAD:

A public gas utility has sought an increase of around 45% in gas prices to meet the revenue shortfall for fiscal year 2022-23.

The Oil and Gas Regulatory Authority (Ogra) held a public hearing on Thursday to consider Sui Southern Gas Company’s (SSGC) petition for determination of its estimated revenue requirement and prescribed prices for fiscal year 2022-23.

The gas utility projected an average prescribed price of Rs1,013.02 per mmbtu for 2022-23 in the natural gas business. Moreover, it estimated RLNG (re-gasified liquefied natural gas) cost of service at Rs16.47 per mmbtu with effect from July 1, 2022 for RLNG business.

The utility filed a petition before Ogra on February 14, 2022 for determination of its estimated revenue requirement and prescribed prices for the upcoming fiscal year.

Subsequently, it filed an amended petition on March 9, 2022 segregating the revenue requirement petition in terms of activities, ie transmission, distribution and sales.

The gas utility’s sales touched Rs263.5 billion, while its operating cost stood at Rs25.1 billion. Its return on assets was Rs7.9 billion.

It requested a subsidy of Rs1.37 billion on LPG (liquefied petroleum gas) air mix plants. It also requested Rs15 billion on account of UFG (unaccounted for gas) adjustment on LNG volumes.

SSGC believed that it had faced losses of Rs15 billion on account of UFG due to RLNG transmission in the system.

It underlined that it was facing a total revenue shortfall of Rs88 billion and sought around 45% increase in gas prices effective July 1, 2022 to meet the revenue requirement.

The revenue requirement will enable the company to cover the cost of gas, operating cost and return on assets.

The cost of gas is linked to the international crude oil prices, in accordance with the agreements between the federal government and gas producers.

Moreover, the exclusive rights held by the utility in its franchise areas, ie Sindh and Balochistan, have expired as per the respective licence.

It has also projected the requirement of Rs1,395 million for laying 189km-long distribution main lines to connect various new towns and villages.

During the public hearing, several questions were raised, which included whether the utility’s claim on account of transmission and distribution costs at Rs22,585 million for fiscal year 2022-23 was prudent, considering the fact that the indigenous gas supplies were declining.

It was also asked whether the claim of Rs2,761 million on account of expected credit loss in the light of compliance with IFRS-9 was justified, based on the fact that the company was operating under a monopolistic regime and was less exposed to financial risk.

The other question raised was whether the claim for addition of 132,000 new domestic gas connections on indigenous gas and 713 commercial/ industrial connections on RLNG was justified, while ensuring continuity and security of gas supply to existing as well as prospective consumers.

Moreover, it was asked whether the proposed expansion of distribution network of 1,123 km costing Rs7,719 million was prudent, considering the fact that SSGC no longer held exclusivity to develop gas schemes in its franchised areas of Sindh and Balochistan.

The utility had also claimed capital expenditure amounting to Rs37,618 million against indigenous gas and RLNG, the “expenses claimed against UFG control activities are justified in view of 13.98% UFG projected by the utility”.

Published in The Express Tribune, April 8^th, 2022.

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