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Wednesday May 29, 2024

SNGPL explains factors behind gas tariff hike

Depletion of indigenous gas resources leads to the diversion of RLNG to domestic sector consumers, especially during the winter

By Our Correspondent
March 29, 2024
This photo shows the flames of a lit burner of a gas stove. — AFP/File
This photo shows the flames of a lit burner of a gas stove. — AFP/File

LAHORE: The Sui Northern Gas Pipelines Limited (SNGPL) has attributed the increase in gas tariffs to multiple factors. According to an SNGPL spokesperson, the primary reasons for the rise in gas prices include: Depletion of indigenous gas resources leads to the diversion of Regasified Liquefied Natural Gas (RLNG) to domestic sector consumers, especially during the winter. The average cost of RLNG is approximately Rs3,500 per MMBTU, while the domestic sector average sale price is around Rs1,100 per MMBTU.

This difference of Rs231 billion necessitated the current price increase to cover the cost of diverted RLNG and maintain the LNG supply chain.

The cost of indigenous gas has also increased by Rs69 billion. The devaluation of the rupee by 55 percent over the past two years, coupled with gas purchase contracts denominated in US dollars, is linked to crude oil and furnace oil prices.Despite recent increases, the average gas rate for the protected class of domestic consumers is Rs513 per MMBTU, significantly lower than the cost price of Rs1,674 per MMBTU. Approximately 4.4 million consumers in the SNGPL network fall into the protected category, comprising 60 percent of the total consumers, with bills during the winter month of February remaining below Rs2,000 (inclusive of taxes).

Regarding concerns about inflated HR costs in gas pricing and the increase in gas prices three times in the current year, the spokesperson clarified that operating costs, including HR costs, constitute only four percent of the total gas price. The remaining 94 percent is the cost of gas alone, with the rest being returned on CAPEX.

It is noteworthy that despite recent price increases, a subsidy of Rs128 billion is projected to be provided to domestic consumers of SNGPL during FY2023-24. The gas business in Pakistan is highly regulated under the OGRA Ordinance, 2002. OGRA conducts public hearings twice a year to determine the revenue requirements of gas companies. The ongoing public hearings by OGRA are for FY2024-25, effective July 1, 2024, and are not expected to result in any immediate changes to gas prices.