Gas may be a domestic resource, but it will not last forever
Regulators need to rationalise costs, instead of trying to appease the public.
Regulators need to rationalise costs, instead of trying to appease the public. PHOTO: FILE
DUBAI:
Natural gas is a resource bestowed on our lands in abundance by nature. How we have abused this precious wealth by using it wastefully in cars and businesses is a case study in its own.
Instead of burning gas for generating power, which could have been the most economical in the fuel mix, we have come down to a stage where millions of vehicles are dependent on an apparently cheap, but paradoxically scarce resource. Meanwhile, fertiliser plants are facing regular shortages in their supplies; power plants are using expensive furnace oil; and, for the first time in our history, it is actually difficult to cook food in our own homes.
Amongst the reforms introduced by General Pervez Musharraf in his first three years was the establishment of the Oil and Gas Regulatory Authority (Ogra) and the National Electric Power Regulatory Authority (Nepra) as bodies that could independently regulate the workings of our energy sector. While the intent was to have transparency and benchmarking against standards, Ogra and Nepra have now become tools in the hand of some lobbies. Between 2001 and 2007, CNG stations and gas connections to some industries were selectively approved through Ogra, which profited a few businesses at the cost of national wealth.
In our energy mix, as of last fiscal year, natural gas has a 43% share, which is equal to 1,276.366 billion cubic feet. This has grown at an annual rate of 4.05% over the last 11 years. Out of this, approximately 34% is consumed by the CNG, household and commercial sectors. Most of the gas theft that occurs in Pakistan takes place at the CNG stations level, so not only does the public receive less of the expensive fuel, the element of gas theft causes greater loss to the nation in the form of loss of revenue to gas supplying companies and to the state in form of taxes.
The two gas distribution companies – Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines (SNGPL) – are assured a 17% rate of return on the average net operating assets, and at the same time are allowed to demand for an Unaccounted for Gas (UFG) allowance for theft, leakages, errors etc. It is important to understand that calculating average net operating assets and the UFG determine the revenue requirement of the two companies and the price to be charged from consumers, leading to an impact on the performance and health of these two companies.
Both companies are calculating the UFG to be at 11%, but conservatively petitioning for 7% as the projected UFG, while Ogra is insisting on 4.5% as the benchmark. The financial implication of Ogra’s insistence is a reduction in retained earnings of Rs8.361 billion for SNGPL for the last two fiscal years, and Rs4.413 billion for SSGC for fiscal 2012.
Not too long ago, a representative of the Consumer Rights Commission of Pakistan wrote an article in this newspaper commending Ogra for dismissing the petitions of SSGC and SNGPL and protecting the rights of consumers. Consumers are just one part of the chain of stakeholders: what about the shareholders who invested in the shares of SSGC and SNGPL? How about the lenders who provide long-term financing to these companies based on the tariff agreements and regulatory laws? What about the state of Pakistan, which is the largest shareholder in these companies and also a recipient of various taxes? Is it fair that the theft of gas by a few individuals and businesses causes revenue loss to shareholders and the state?
While ‘experts’ in our country call the ‘common man’ and ‘consumer’ victims and suggest changes in law and improving efficiencies as remedies which are clearly long-term in nature, no one ever suggests that SSGC and SNGPL make the purchase of gas by consumers a prepaid deal. If such a thing happens, theft will definitely reduce and thieves will skim less from the entire society.
Pakistan has suffered enormously on a number of counts over the last few years. Economy-wise, low foreign investment has caused problems for the entire state. Has anyone ever questioned the role of regulators who go against their own policies, rules and regulations and cause investors to shy away from potential goldmines? Ogra has to decide if it wants to play to the galleries for short-term advantages, or if it has to move as per rules and regulations to provide a level playing field for all parties.
THE WRITER IS A UAE-BASED INVESTMENT BANKER WHO CAN BE CONTACTED AT ALI.WAHAB@TRIBUNE.COM.PK
Published in The Express Tribune, March 25th, 2013.
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Natural gas is a resource bestowed on our lands in abundance by nature. How we have abused this precious wealth by using it wastefully in cars and businesses is a case study in its own.
Instead of burning gas for generating power, which could have been the most economical in the fuel mix, we have come down to a stage where millions of vehicles are dependent on an apparently cheap, but paradoxically scarce resource. Meanwhile, fertiliser plants are facing regular shortages in their supplies; power plants are using expensive furnace oil; and, for the first time in our history, it is actually difficult to cook food in our own homes.
Amongst the reforms introduced by General Pervez Musharraf in his first three years was the establishment of the Oil and Gas Regulatory Authority (Ogra) and the National Electric Power Regulatory Authority (Nepra) as bodies that could independently regulate the workings of our energy sector. While the intent was to have transparency and benchmarking against standards, Ogra and Nepra have now become tools in the hand of some lobbies. Between 2001 and 2007, CNG stations and gas connections to some industries were selectively approved through Ogra, which profited a few businesses at the cost of national wealth.
In our energy mix, as of last fiscal year, natural gas has a 43% share, which is equal to 1,276.366 billion cubic feet. This has grown at an annual rate of 4.05% over the last 11 years. Out of this, approximately 34% is consumed by the CNG, household and commercial sectors. Most of the gas theft that occurs in Pakistan takes place at the CNG stations level, so not only does the public receive less of the expensive fuel, the element of gas theft causes greater loss to the nation in the form of loss of revenue to gas supplying companies and to the state in form of taxes.
The two gas distribution companies – Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines (SNGPL) – are assured a 17% rate of return on the average net operating assets, and at the same time are allowed to demand for an Unaccounted for Gas (UFG) allowance for theft, leakages, errors etc. It is important to understand that calculating average net operating assets and the UFG determine the revenue requirement of the two companies and the price to be charged from consumers, leading to an impact on the performance and health of these two companies.
Both companies are calculating the UFG to be at 11%, but conservatively petitioning for 7% as the projected UFG, while Ogra is insisting on 4.5% as the benchmark. The financial implication of Ogra’s insistence is a reduction in retained earnings of Rs8.361 billion for SNGPL for the last two fiscal years, and Rs4.413 billion for SSGC for fiscal 2012.
Not too long ago, a representative of the Consumer Rights Commission of Pakistan wrote an article in this newspaper commending Ogra for dismissing the petitions of SSGC and SNGPL and protecting the rights of consumers. Consumers are just one part of the chain of stakeholders: what about the shareholders who invested in the shares of SSGC and SNGPL? How about the lenders who provide long-term financing to these companies based on the tariff agreements and regulatory laws? What about the state of Pakistan, which is the largest shareholder in these companies and also a recipient of various taxes? Is it fair that the theft of gas by a few individuals and businesses causes revenue loss to shareholders and the state?
While ‘experts’ in our country call the ‘common man’ and ‘consumer’ victims and suggest changes in law and improving efficiencies as remedies which are clearly long-term in nature, no one ever suggests that SSGC and SNGPL make the purchase of gas by consumers a prepaid deal. If such a thing happens, theft will definitely reduce and thieves will skim less from the entire society.
Pakistan has suffered enormously on a number of counts over the last few years. Economy-wise, low foreign investment has caused problems for the entire state. Has anyone ever questioned the role of regulators who go against their own policies, rules and regulations and cause investors to shy away from potential goldmines? Ogra has to decide if it wants to play to the galleries for short-term advantages, or if it has to move as per rules and regulations to provide a level playing field for all parties.
THE WRITER IS A UAE-BASED INVESTMENT BANKER WHO CAN BE CONTACTED AT ALI.WAHAB@TRIBUNE.COM.PK
Published in The Express Tribune, March 25th, 2013.
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