Populist economics: Gas companies likely to surpass revenue targets

SSGC and SNGPL ask OGRA to decrease gas prices for consumers.

ISLAMABAD: In a surprising move, gas providers have asked the regulator to decrease gas prices for consumers as they estimate to make a revenue slightly more than their requirement.

After doing the maths, Sui Northern Gas Pipelines (SNGPL) reported that it is expected to make Rs280 million more than its financial projections in the upcoming financial year.

According to revised petitions filed by SNGPL and Sui Southern Gas Company, gas companies have sought a nominal decline of Rs2.01 per Million British Thermal Unit (mmbtu) in gas prices from July 1, the new financial year.

However, an expert claimed this to be a political move to get the masses on their side before the budget announcement.

The two companies had earlier sought a decrease of Rs13 per mmbtu in gas prices but revised it after redoing the math.

SNGPL in its revised petition says that due to increase in oil prices and variation in rupee-dollar parity, the surplus in the revenue requirement dropped massively from Rs264,558 million but still stood at Rs280 million more than its ideal level.

The other reason for the drop and not an increase in gas prices is that gas companies are on track to meet its financial projection for the current financial year. An increase is sought to recover or make up for the shortfall persisted in the previous financial year. SNGPL has recovered shortfall of Rs3.07 billion in the ongoing financial year 2012.

SSGC had filed a petition on November 30, 2011 for determination of its revenue requirement for financial year 2013 at Rs159,594 million. The petitioner had also requested an additional amount of Rs248 million on account of air-mix LPG project that will cause a decrease in the surplus revenue to Rs3,291 million.

SSGC filed an amended petition on March 22, 2012 in view of increase in oil prices and rupee-dollar parity during November 2011 to March 2012 with 0.75% monthly escalation. Resultantly, the surplus in revenue has been decreased to Rs995 million excluding subsidy of Rs248 million for air mix LPG project, saying that the remaining surplus of Rs747 million revenue be adjusted by decreasing prescribed price by Rs2.01 per mmbtu effective from July 1.

The gas providers’ net profit plummeted 27% to Rs1.54 billion during July to December 2011.

Meanwhile, gas companies have sought a subsidy of Rs6 billion for air mix LPG plants to be recovered from gas consumers. Air mix LPG plants are a project that will provide gas supply to remote areas of the country which do not come under the gas providers’ network.

They have also asked for permission to charge an increased Rs23.88 per mmbtu and Rs32.48 per mmbtu, respectively, from consumer in order to recover the cost of expanding transmission network and keep the 17.5% guaranteed rate of return on assets intact. Consumers will face increase outages in the future as the expansion will bring more consumers in the loop and increase its demand.

Published in The Express Tribune, April 6^th, 2012.