OGRA announces major hike in gas prices

The Oil and Gas Regulatory Authority (OGRA) has permitted a significant increase in gas tariffs for consumers of the Sui Northern Gas Pipelines Limited (SNGPL) and the Sui Southern Gas Company Limited (SSGC) by 35.13% and 8.57% respectively.

This hike, applicable for the current fiscal year 2023-24, will take effect from January 1, 2024.

This marks the second increase in gas prices in the current financial year. Previously, OGRA announced a 193% raise in gas prices effective from November 1, 2023.

The proposed gas tariff aims to cover the Rs98 billion shortfall of both gas companies. The interim government had projected to collect Rs980 billion against the estimated revenue requirements of Rs700 billion for both companies.

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The fuel regulator has recommended an average increase in the prescribed gas price by 23% to Rs1,590 per mmbtu from the previous average price of Rs1,291 per mmbtu, determined on June 2, 2023.

OGRA has announced a 50% increase (Rs415.11 per mmbtu) for the SNGPL, bringing the gas price up to Rs1,238.68 per mmbtu, effective from July 1, 2023. Additionally, it raised the gas price by 45% (Rs417.23 per mmbtu) to Rs1,350.68 per mmbtu for the SSGC.

The interim government had committed to the International Monetary Fund (IMF) to announce a raise in gas sale price by February 18, 2024.

Under the OGRA Ordinance, if the government does not respond to OGRA's notification within 40 days, the tariff determined by the regulator is automatically enforced.

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The prescribed price of the SNGPL has been increased to Rs1,673.82 per mmbtu compared to Rs1,238.68 determined on June 2, 2023. The gas tariff of the SSGC has been increased to Rs1,466.40 per mmbtu from Rs1,350.68 per mmbtu.

The regulator has also decided to allow the SNGPL a 50 percent adjustment for the Consumer Price Index (CPI) for the year, in addition to the already placed human resource (HR) benchmark to meet genuine and rational HR costs.

OGRA noted that the additional funds of Rs2,832 million on account of HR benchmark over the Determination of Estimated Revenue Requirement (DERR) are utilized to meet the demand of the Collective Bargaining Agreement (CBA) as well as low salary earning executive staff on priority.

The HR cost is provisionally determined at Rs23,100 million, including Internal Accounting Standards (IAS) costs, as against Rs20,268 million allowed per DERR for the year.

For the SSGC, the regulator has also allowed a 50% CPI for the year in the existing HR benchmark formula. The HR cost is provisionally allowed at Rs21,633 million, including IAS-19, and Rs3,880 million on account of regasified liquefied natural gas (R-LNG) for the year.

The authority has decided to maintain its decision and fixed legal and professional charges at Rs210 million for the year, despite the SNGPL's projection that litigation against the company will increase by 22%. The legal cases filed during July 22 to June 23 were 27,081.

The authority has allowed Rs194 million for legal and professional charges against the SSGC petition, claiming Rs376 million due to a 100% increase in counsel fees owing to hyper-inflation coupled with extensive litigation in Balochistan and anticipated legal challenges relating to land acquisition.

The authority observed that the issue of liquidity crunch in LNG/RLNG supply chain is duly acknowledged by the Petroleum Division. However, an upfront amount of Rs27,500 million is not justified, and it has allowed 50% of the claim, Rs13,750 million, subject to actualization at year-end. For the SSGC, the authority has determined R-LNG cost of service at Rs14,680 million.