Stagnant: Gas prices left unchanged for now

Govt wants to first deal with recovery of Rs33b from gas utilities.

ISLAMABAD:

Prime Minister Nawaz Sharif has directed the Ministry of Petroleum and Natural Resources to keep gas prices on hold until a possible adjustment of Rs33 billion in accounts of gas distribution companies in the wake of downward revision in the ceiling of Unaccounted for Gas (UFG), which covers losses caused by theft and leakages.

“High-ups of the petroleum ministry said in a meeting last week that the prime minister did not want to raise gas prices at present in a bid to avoid backlash from the people and opposition parties,” a ministry source told The Express Tribune.

However, the Oil and Gas Regulatory Authority (Ogra) – the industry regulator – was in trouble now, considering how to pass on the impact of increase in gas prices due to revision in UFG ceiling since 2010-11 to date, sources said.

In the meeting, Ogra officials asked Petroleum Minister Shahid Khaqan Abbasi to issue policy guidelines so that the regulator could adjust the accounts of gas distribution companies – Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) – in a way that they did not become bankrupt. In reply, the minister assured the regulator that the guidelines would be issued soon.

Ogra had to take a decision on revenue requirements of gas utilities for financial year 2013-14 to be implemented from January 1, but the federal government did not issue policy guidelines to save the utilities from bankruptcy. These companies could have gone into trouble if Rs33 billion was recovered from them, as directed by NAB, in line with the downward revision in UFG ceiling of the past few years.

According to officials, this amount will go to the provinces on account of gas development surcharge and the federal government will take a hit with no relief for gas consumers.

The federal government had been a major beneficiary of Ogra’s decision on UFG ceiling in 2010, when Tauqeer Sadiq was heading the regulator. Ogra raised the ceiling from 5% to 7%, enabling gas utilities to pocket an extra Rs44 billion from the consumers to cover higher gas theft and leakages over a three-year period.

Now, the court has given a judgment in favour of 5% ceiling, prompting Ogra to recover Rs44 billion from the utilities or the federal government, which is a major shareholder in the companies.

Earlier, Ogra had planned to get the money back in three years but the utilities insisted that it could not make adjustment in their accounts over three years according to audit rules.

The federal government is in a fix as to how to deal with the situation that could lead to bankruptcy of gas companies.

The total financial impact of the court’s stay order on SNGPL for financial years 2010-11, 2011-12 and 2012-13 was estimated at Rs23.1 billion. Of this amount, Rs9.34 billion has already been adjusted based on the removal of the order by the Lahore High Court.

In the case of SSGC, the impact was calculated at Rs21.74 billion. It is interesting to note that NAB has also filed a reference against heads of these companies, which got a stay order against bringing down the UFG ceiling.

Published in The Express Tribune, March 25^th, 2014.

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