SSGC seeks hike amid Rs47b shortfall

Additional increase draws criticism from industries

KARACHI:

In a bid to offset a staggering shortfall of Rs47.77 billion in its revenue from the sale of indigenous gas during the current fiscal year 2023-24, Sui Southern Gas Company Limited (SSGC) has approached the Oil and Gas Regulatory Authority (Ogra), seeking approval for an additional increase of Rs266.18 per mmbtu in end-consumer tariffs, slated to take effect from July 1, 2023.

At a public hearing on Monday, SSGC appealed to Ogra, asking for approval for this supplementary tariff increase, in addition to the previously permitted rise of Rs417.23 per metric million British thermal unit (mmbtu). The aim is to generate a total of Rs104.72 billion in FY24.

Managing Director of SSGC, Imran Maniar, highlighted the anticipated substantial losses from the Balochistan region during the hearing. The recent tariff hike would translate to Balochistan consumers facing monthly gas bills of up to Rs90,000 for many, despite 65% of the province’s residents earning Rs25,000 or less. SSGC argues that if not allowed to recover the revenue shortfall from other consumers, particularly in economically active hubs like Karachi, the company will incur significant losses.

Maniar referred to a recent study revealing that 72% of gas meters in Balochistan are tampered with, but specific details on how many consumers pay their monthly bills on time were not provided. He estimated that disallowing unaccounted-for gas (UFG), including line losses and theft, would amount to Rs20 billion from Balochistan in FY24, with UFG standing at a staggering 57.68%, significantly higher than the benchmark of 7.6%.

SSGC has not only requested an additional increase in the tariff for indigenous gas but has also applied to Ogra for permission to raise the tariff of imported gas (RLNG) by Rs39.23 per mmbtu. This move is intended to generate an extra Rs18.13 billion in FY24. Furthermore, the company is seeking Ogra's approval to collect federal excise duty (FED) on re-gasified liquefied natural gas (RLNG) based on monthly pricing, aiming to recover areas worth Rs9.11 billion from April 2016 to June 2021.

Another request from SSGC is for Ogra to allow Rs4.62 billion in RLNG provision pricing on account of FED for FY2023-24, following the Federal Board of Revenue’s (FBR) order to pay FED on RLNG re-gasification activities. The monthly notification of provisional RLNG pricing without considering the FED component has led to a continuously accumulating

FED liability since the inception of RLNG business. The FBR is demanding an FED deposit expected to reach Rs24.1 billion by FY2023-24.

Read SSGC also seeks gas price hike

In a bid to prevent losses due to potential defaults on monthly bill payments, SSGC has proposed collecting an additional Rs9.58 billion in security deposits from consumers in six equal monthly instalments. This proposed increase would align security deposits with three-month bill payments.

SSGC also demanded a budget increase for the pay of its workers, numbering around 11,000 at present, and requested Ogra’s approval to purchase new vehicles.
OGRA:

Ogra Chairman, Masroor Khan, highlighted the challenges faced by the gas industry, including a reduction in gas production from local fields to 3,000 million cubic feet per day (mmcfd) due to a 9% depletion in gas reserves per annum nationwide. He highlighted the increasing role of imported RLNG, which has raised average unit pricing to Rs2,400-2,500 per unit in some cases.

Khan stressed that the nation needs to accept RLNG as a reality, sooner rather than later, as local gas reserves continue to deplete. The decision on the ratio of local gas to imported gas in the blended supply for different industries remains the prerogative of gas utility companies. Ogra notifies new pricing in collaboration with the ministries of finance, commerce, and industries.

Industry reaction

Industry leaders criticised SSGC for attempting to transfer its financial burden to industries, questioning the rationale behind providing subsidised gas to fertiliser manufacturers. Zubair Motiwala, Chief of the Trade and Development Authority of Pakistan (TDA), expressed concern over SSGC’s suggestion to increase the ratio of expensive RLNG in the blended gas to industries, potentially leading to increased production costs and industry closures.

In response to industry backlash, SSGC’s MD, issued a strong statement, threatening to shut down the entire supply system if the proposed tariff adjustments were rejected. He stated, “If you don’t want the gas (RLNG), so no one would get the gas, including industries and domestic (household). I would pull the supplies and shut down the system.”

A businessman, Arif Bilwani, questioned the logic of supplying subsidised gas to fertiliser manufacturers in the name of food security, while these farmers are sold fertiliser at exorbitantly higher prices, enabling manufacturers to profit at the expense of textile and other industries. Bilwani suggested deducting SSGC losses from the NFC award under the 18th amendment.

Shiraz Khan of the All Pakistan Textile Manufacturing Association (APTMA) expressed concern that the increase in gas prices would impact businesses instead of reducing circular debt, with the export sector expected to be a major survivor.

Zain Bashir, Chairman of the Landhi Association of Trade and Industry, urged SSGC to take ownership of its losses, stressing that the proposed additional increase in gas prices for industries would make the tariff the highest in the region, exceeding $9.7 per unit.

As production costs soar, industries have started downsizing, and the repercussions of the proposed tariff adjustments are expected to be felt nationwide in the near future.

Published in The Express Tribune, December 19^th, 2023.

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