OGRA proposes lower gas theft and leakage ceiling

Gas utilities will struggle to bring down UFG level to 5.5% from 9-12%

ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra), in a bid to tighten the noose around gas utilities, is likely to fix the target of unaccounted-for-gas (UFG) at a lower level at 5.5% for the next financial year starting July, a move which will check gas theft and leakage and provide relief to consumers.

SNGPL and SSGC are demanding an increase in UFG benchmark from 7% to 9% and 8% respectively. At present, SNGPL’s UFG is 12% and SSGC’s at 9%.

According to sources, Ogra has sent a proposal for UFG benchmark to the Ministry of Petroleum and Natural Resources and other stakeholders including chambers of commerce and industry and compressed natural gas (CNG) station operators.

The proposal came in the wake of strong criticism of Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) - in recent public hearings for revising gas tariffs from July 2012 - for high gas theft and leakage levels. The stakeholders asked Ogra not to allow the gas utilities a higher UFG ceiling.

“However, the petroleum ministry wants Ogra to set the UFG ceiling at a higher level at 7.5%, apparently believing that the 5.5% target will be too tough for the gas companies to achieve,” a ministry official said.

In the face of high UFG levels, the gas companies are facing a financial crunch as they expand their transmission and distribution network across the country. UFG is a term that reflects gas theft and leakage in the system.

In the tenure of former Ogra chairman Tauqir Sadiq, the UFG ceiling was raised from 5% to 7%, leading to an increase in gas tariffs which brought the gas utilities an additional Rs36 billion in revenues from consumers in 2009-10.

Stock brokers also took benefit of this high ceiling and pocketed billions of rupees following a rise in share prices of gas companies. The National Accountability Bureau (NAB) is investigating the increase in UFG ceiling which put an additional burden on the consumers.

“We want to reduce gas theft by 80% and set the UFG benchmark at 5.45%,” a government official said.

Gas theft and leakage have continued to go up as SSGC’s UFG stood at 7.09% in 2002-03, which went up to 9.43% in 2010-11. SNGPL’s UFG was 6.75%, which rose to 11.21% in 2010-11.

Ogra allowed a maximum 6.5% UFG in 2003-04 and 6% in 2004-05, 2005-06 and 2007-08. Maximum UFG should have been 5.5% in 2009-10 and 5% in 2010-11 and 2011-12.

However, Ogra without conducting any study revised the base for determining gas prices and increased UFG to 7% in its decision of September 24, 2010. Just few weeks after this, Ogra took another turn and set UFG at 5% for 2010-11.

This prompted gas companies to approach courts, which gave a stay order against the decision. “The stay order was for 2009-10 and 2010-11 and there is no stay for the upcoming financial year,” the official said, adding the plan of reducing UFG ceiling would be implemented after consultation with all stakeholders who have already criticised the gas companies for higher UFG levels.

Published in The Express Tribune, May 3^rd, 2012.