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Monday June 17, 2024

OGRA cuts SNGPL gas prices by 10pc, SSGC by 4pc, effective July 1

By Israr Khan
May 22, 2024
The Oil & Gas Regulatory Authority (OGRA) headquarters. — APP/File
The Oil & Gas Regulatory Authority (OGRA) headquarters. — APP/File

ISLAMABAD: The Oil and Gas Regulatory Authority (OGRA) has cut average gas prices for Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) by 10 percent and 4 percent respectively, effective from July 1, 2024.

Following holding hearings on the petitions of these gas utilities, the regulator assessed their estimated revenue requirements (ERRs) and identified surpluses. OGRA determined the need for a decrease in gas prices to ensure financial equilibrium. The revised provisional prescribed prices are intended to support the financial health of both SNGPL and SSGC while providing relief to consumers.

However, these revised prices are contingent upon the federal government's advice regarding the sale price of gas for each category of retail consumers. OGRA has emphasized that any re-adjustments will keep the overall increase in the average prescribed prices unchanged, enabling the gas companies to meet their total revenue requirements.

The average prescribed price for SNGPL has been set at Rs1,635.90 per Million British Thermal Units (MMBTU), marking a decrease of Rs 179.17 per MMBTU, which translates to a 10 percent reduction from the previous rates. This adjustment is part of OGRA's determination of the revenue requirements for SNGPL.

Additionally, OGRA addressed the financial shortfall claimed by SNGPL for previous years. While SNGPL had claimed a shortfall of Rs862.6 billion, OGRA's calculations have determined the shortfall to be significantly lower at Rs580.5 billion. This recalibration aims to reflect a more accurate financial position of the company.

OGRA has requested the federal government’s advice on category-wise sale prices. The regulatory authority indicated that any revisions based on the government’s recommendations will be notified accordingly. Until the government’s advice is received, the existing category-wise natural gas sale prices will remain in effect.

The authority directed these companies to provisionally maintain their previous Unaccounted For Gas (UFG) benchmarks for the fiscal year 2024-25. This directive will remain in effect until OGRA conducts a fresh UFG study and may subsequently modify the benchmarks.

UFG denotes the discrepancy between gas supplied and accurately billed. It's caused by technical factors during distribution, with consumers bearing the resulting costs. For SNGPL the UFG benchmark for distribution and transmission will continue at 6.25 percent and 0.36 percent respectively with an estimated loss of Rs8.99 billion, while for SSGC they are 6.25 percent and 0.14 percent with Rs23.75 billion.

For SSGC, OGRA has set the average prescribed price at Rs1401.25 per MMBTU, resulting in a reduction of Rs 59.23 per MMBTU, which is a four percent decrease from the previous pricing. This decision was also made after a thorough evaluation of SSGC’s revenue requirements for the financial year 2024-25.

The reductions in gas prices for both SNGPL and SSGC are expected to have a positive impact on consumers and industries reliant on natural gas. By lowering the cost of this essential energy source, OGRA’s decision aims to alleviate the financial burden on households and businesses, fostering economic stability and growth in Pakistan.

This decision comes against a backdropof significant price adjustments and financial challenges in the energy sector. Both SNGPL and SSGC had previously requested substantial increases in gas prices to cover revenue shortfalls and meet operational costs.

For instance, SNGPL had requested an increase of Rs2,646.18 per MMBTU, seeking a new average prescribed gas price of Rs4,446.89 per MMBTU to address a projected revenue shortfall of Rs189.18 billion.

Previously, both SNGPL and SSGC had requested significant hikes in gas prices due to substantial claimed shortfalls and operational costs. SNGPL had sought a 147 percent increase, asking for the new average gas price to be set at Rs 4,446.89 per MMBTU. Similarly, SSGC had requested an increase of Rs 274.40 per MMBTU, aiming to set the average price at Rs 1,740.80 per MMBTU.

These requests followed a 67 percent increase in the natural gas tariff approved by the caretaker government in February 2024, driven by conditions set by the International Monetary Fund (IMF). This increase was part of the structural benchmarks required by the IMF to address revenue shortfalls and ensure financial stability in the energy sector.