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December 16, 2019

Gas companies’ UFG reduction plan approved


December 16, 2019

ISLAMABAD: The government has given approval to the state-run gas companies’ Unaccounted for Gas (UFGs) reduction plan to increase their revenues by Rs29.12 billion till financial year 2021/22.

This UFG reduction plan was approved, as it was one of the requirements of the International Monetary Fund (IMF) for its Extended Fund Facility (EFF), a senior official told this scribe.

Under this plan, the Sui Southern Gas Company Limited (SSGCL) will add around Rs20.1 billion and Sui Northern Gas Pipelines Limited (SNGPL) Rs9.023 billion to their accounts in shape of increasing revenues by cutting down their UFGs.

The Economic Coordination Committee (ECC) of the Cabinet in October 2019 formally given the approval to this three-year (2019/20 to 2021/22) UFG reduction plan for these public gas utilities.

The Ministry of Energy (Petroleum Division) on Sept 25, 2019 also wrote letters to both the companies, saying that UFG reduction plan implementation was one of demand of the IMF Extended Fund Facility (EFF).

Since the plan has been approved, now these companies have started work on it in their respective jurisdictions by controlling theft, meter accuracy, underground and overhead leak survey and repair and implementation of other strategies to bring this UFG issue down. SSGCL under the plan will reduce its UFG by 9.55 percentage points (or 40,629 million cubic feet of gas per day [mmcfd]) that is in financial terms equals to Rs20.1 billion.

In current financial year 2019/20, the company will reduce its UFG by 1.87 percentage points (7,965 mmcfd), in 2020/21, the UFG reduction plan is 2.46 percentage points (or 10,462 mmcfd) while in final fiscal 2021/22, the reduction target is of 2.87 percentage points (or 12,202 mmcfd).

Besides, under the approved plan, the SSGC will introduce fixed-billing gas tariff in Balochistan for fiscal year 2020/21, which will help in further reduction of 2.35 percentage points (or 10,000 mmcfd of gas) UFG.

The ECC has approved the UFG reduction plan for SNGPL that will help it increasing its revenues by Rs9.03 billion over these three years. In outgoing fiscal, it will cut the UFG by 1.5 percentage points (6,840 mmcfd), FY2020/21, by 1.25 percetange points (or 5,700 mmcfd) and by year 2021/22, the UFG reduction target is 1.25 percentage points (or 5,700 mmcfd).

UFG is a phenomenon of gas loss, which is contingent upon occurrence of various technical factors when gas flows from fields to end consumers.

Since UFG disallowances has significant impact on the revenues and which in turn has compounding impact on the revenue shortfall of these companies, so the government decided for taking corrective measures in their UFG reduction and started consultative process and held various meetings with these companies.

Currently the UFG level of both the companies is around 13 percent because of commercial and technical losses, which is significantly above the allowed benchmark of 7.5pc. To bring the losses down, these companies had prepared the UFG reduction plans for three years and were submitted to the ministry, which was then tabled to the ECC and then it approved it.

These plans include introduction of 30 key monitoring indicators (KMIs) that include theft control and compliance with industry standards that will facilitate the identification of gaps and the design of solutions.

The UFG reduction plan would help to reduce the losses to enhance the financial health of the companies by improving governance to control losses and increasing recovery of power bills.