Ogra may revise benchmark

SSGC and SNGPL submitted petitions to Ogra, seeking an adjustment to their UFG benchmark.

KARACHI: The Oil and Gas Regulatory Authority (Ogra) is expected to revise its benchmark for calculating Unaccounted for Gas (UFG) for the gas distribution companies, which will lead to a healthy improvement in profits of the utilities, a research report said.

Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) had submitted petitions to Ogra, seeking an adjustment to their UFG benchmark in accordance with ground realities. The mechanism had badly hit their profits since 2004, InvestCap Research said in a report on Friday.

These companies have been paying penalties to Ogra since 2004 as the authority set the benchmark to gauge the efficiency of their distribution network. Initially, Ogra set the target for UFG at 6.5 per cent of their sales for FY04 and that had to be reduced to 5 per cent by FY12.

However, both of them failed to achieve the efficiency benchmark. SSGC’s UFG level reached 7.93 per cent while SNGPL hit 8.05 per cent in FY09 against the target of 5.5 per cent.

After the huge losses on account of UFG, the companies asked Ogra to revise the UFG target to realistic levels.

“If Ogra decides to increase the UFG benchmark by 1 per cent, then the SSGC can improve its profitability by Rs1.3 billion (earning impact of Rs1.86 per share),” the report said.

The gas distribution companies are in the process of estimating damages to their infrastructure after the floods wreaked havoc in the country. “We have estimated Rs5 billion in infrastructure damages for SSGC in Sindh, therefore rebuilding of pipelines will not only provide excellent returns, but will also reduce actual UFG losses in the future owing to replacement of old infrastructure,” the report said.

Published in The Express Tribune, September 26^th, 2010.