Second year in a row: SSGC blames OGRA for delay in finalising accounts

Regulator says it is awaiting govt’s decision on the matter

KARACHI:

Sui Southern Gas Company (SSGC) on Wednesday regretted that it has been unable to finalise annual accounts for the second year in a row due to a delay on part of the Oil and Gas Regulatory Authority (Ogra).

The gas utility was due to present its fiscal year 2013-14’s account for approval at the annual shareholders’ meeting in October.

“…despite our utmost efforts and follow-up with Ogra, till date the accounts for 2012-13 have not been finalised, resulting in our inability to confirm accounts for 2013-14,” the company said in a notice to the stock exchange.

The tariff of SSGC and its sister organisation Sui Northern Gas Pipelines Limited is regulated by Ogra, which decides how much the companies generate by charging consumers and how much they spend in a given year.

As per the last announced results, SSGC had posted a net profit of Rs1.6 billion in the nine months to March 2013, whereas SNGPL incurred a loss of Rs2.1 billion during the same period.

Ogra, which was at the center of a controversy over allegations of kickbacks for issuing permits to CNG stations and manipulation in shares of SSGC, is wary of taking any key decisions, industry people say.

When contacted, the Ogra spokesperson said it has completed all the formalities due on its part, prepared the petitions and submitted its report to the government. It is now awaiting a final decision in the matter.

The regulator must also have three permanent members including its chairman, but the government has been unable to fill the posts since last year.

Arif Khan, who was the Member Oil, was recently transferred to the Ministry of Interior as an additional secretary. His placement at Ogra was in doubt since the start as the authority feared that its decisions could be challenged if taken by a ad-hoc official.

Now, Ogra has advertised for hiring a new member.

Another thorn

There remains another issue, which will test the nerves of Ogra members. Unaccounted for gas (UFG) loss, which is the quantity of gas lost in pipelines, has become an enigma for the government.

The quantity of gas that gets wasted as UFG is around 406 million cubic feet per day (mmcfd), which is 10.5% of the combined production of all gas fields in the country.

At today’s gas price in the domestic market – not the much higher international rate – the cost of this wasted gas comes to over Rs21 billion.

Someone has to bear this cost and, in this case, it is mostly consumers or the factories paying a higher tariff.

How much of this should be passed on to the consumers and why shouldn’t gas distribution companies bear the loss has become a critical question for government officials.

It has also dragged them, politicians and stock traders to court over corruption charges.

Over the years, SSGC and SNGPL were made to expand piped connection deeper into rural areas as politicians vied to garner support of voters.

One aspect of this expansion is also that the profit of gas utilities is tied with return on fixed assets – the more pipelines they add, the bigger their bottom line. SSGC and SNGPL’s profitability is linked with 17% and 17.5% rate of return on their net fixed assets, respectively.

While the Ministry of Petroleum and gas utilities have made it clear that an upward revision in UFG benchmark remains imperative, other government officials want to avoid the controversy, industry people say.

“What would be most interesting is the abnormal jump in SSGC and SNGPL shares we might see if the new tariff comes incorporated with higher UFG level,” said a market analyst.

Published in The Express Tribune, November 6^th, 2014.

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