Industry opposes 50% gas tariff rise
The private sector has rejected the increase in gas transportation tariff by up to 50% proposed by a public utility, warning that it will lead to the collapse of the competitive market created by the regulator for private players.
It said that high gas tariffs would also burden consumers and underlined the need for reducing energy prices to provide relief in line with the vision of Prime Minister Shehbaz Sharif.
The private sector has also sought the liberalisation of the gas market and expressed its willingness to supply gas to residential consumers. Industry representatives said a more open market could also help address the liquefied natural gas (LNG) glut, which has led to the curtailment of 400 million cubic feet per day of indigenous gas supply.
Interveners at a public hearing on the gas transportation tariff said mismanagement in the sector had resulted in reduced supply on the one hand and a worsening crisis on the other.
Sui Northern Gas Pipelines Limited (SNGPL) had sought up to 50% increase in transportation tariff, which stakeholders strongly opposed.
Owing to the LNG glut, PM Sharif is visiting Qatar to divert LNG cargoes, despite an intensifying gas crisis in Pakistan that has left commercial and industrial sectors without adequate supplies.
The Oil and Gas Regulatory Authority (Ogra) held the public hearing on Monday, where it was disclosed that SNGPL's operating expenditures had soared despite persistent shortages.
The company's operating costs rose from Rs66 billion in 2019-20 to Rs94 billion in 2023-24, while profits surged to Rs38.9 billion from Rs19 billion during the same period, despite a declining gas availability.
SNGPL has requested that Ogra pass on the burden of cross-subsidy to private shippers. During the hearing, the CEO of Universal Gas Distribution Company Limited (UGDCL) – the first private gas company – rejected SNGPL's proposed tariff hike.
UGDCL CEO Ghayas Paracha appreciated Ogra's initiative to open the gas market to private firms but cautioned that a 50% increase in transportation tariff would collapse the system entirely.
"The collapse of private players will only strengthen SNGPL's monopoly," Paracha remarked, urging the regulator to conduct performance audits of state-owned utilities.
He argued that company profits were rising due to a fixed rate of return, even as gas supplies were shrinking. He called on Ogra to establish a uniform UFG (unaccounted-for-gas) benchmark applicable to all stakeholders and engage a law firm to review the legal framework governing the UFG practices.
Paracha stressed that shippers and consumers collectively bear costs across the network and must be included in reforms.
SNGPL's business is shrinking rapidly and will continue to contract due to reliance on alternative energy sources and declining consumer confidence in its services. Its operating costs and returns are not aligned with the shrinking gas volumes it handles.
Despite declining supplies, SNGPL's profit in financial year 2023-24 increased by Rs16.5 billion, underscoring disconnect between its operational performance and financial returns. Stakeholders argue that the return mechanism granted to the company is unjustified.
To ensure sustainability, reforms are essential. These include adopting a multi-supplier and multi-buyer model to optimise infrastructure use. He called for revamping SNGPL's organisational structure to align operating costs with actual activities.
He said that separate accounting systems should be maintained for transmission, distribution and sales to improve transparency and called for replacing the asset-based return formula with a fixed margin per mmBtu handled.
He urged the regulator to introduce a multi-year (at least 10-year) fixed transportation tariff for all players, to be reviewed annually under the Ogra ordinance and NGT rules, and indexed to the Consumer Price Index.
Asim Riaz, representing the All Pakistan Textile Mills Association (Aptma), backed the 100% liberalisation of the gas market and called for removing the cap on gas supply by private-sector firms.
He said that LNG clients did not have UFG and therefore, different benchmarks should be set for LNG suppliers. He also raised the issue of diverting LNG cargoes, adding that local consumers did not have gas supplies. He said that LNG was considered an alternative to furnace oil, but it replaced coal for the power sector in Pakistan.
Ogra Chairman Masroor Khan said the regulator's role was to maintain a balance between consumers and investors. He said that it had provided a relief of Rs84 billion to the consumers of SNGPL by disallowing different expenditure heads over the last five years. The regulator also provided a relief of Rs57 billion to the consumers during the period under review.
SNGPL General Manager Operations Saqib Abbas said that the gas utility did not have the freedom to set gas prices for consumers. He added that end-consumers were bearing the burden and pleaded for shifting the burden of cross-subsidy to private shippers.