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March 19, 2020

Govt asks Sui companies to cut gas tariff


March 19, 2020

ISLAMABAD: The government has plainly asked the Sui gas companies that instead of asking for increasing the gas tariff, cut unaccounted for gas (UFG), which is much higher than the permissible level.

The government cannot burden the masses through higher gas tariff to finance the companies' own inefficiencies.

UFG is a phenomenon of gas loss, which is contingent upon occurrence of various technical factors when gas flows from fields to end consumers. 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. One percent UFG loss of both Sui companies in monetary terms exceeds 4 billion rupees.

Hence the government is asking the Sui gas companies to curtail UFG losses or reduce the allowed UFG to ensure efficient use of gas.

A statement issued here by the Petroleum Division said that over the last five years, SSGC and SNGPL have accumulated Rs150 billion losses, which is a challenge for the the incumbent government.

These companies were forced by the successive governments to maintain low tariff for consumers, especially domestic, to get the maximum political mileage.

This artificial price management coupled with systemic inefficiencies has seriously undermined these public sector enterprises to deliver sustainable and economically-viable services to the general public.

The prime minister of Pakistan, after taking stock of the challenge, directed that the corporate bodies under the Petroleum Ministry must be administered as per the best corporate governance principles.

The boards of all companies under the Petroleum Division have been reconstituted and known industry professionals were inducted as members. These boards were tasked to appoint the best available professionals as MD/CEOs of the companies.

The SSGC and SNGPL have been asked to reduce their allowed unaccounted for gas (UFG) benchmark and also return on assets to strengthen their financial health instead of solely relying on increasing the gas tariff that ultimately affects the cost of doing businesses. The government has asked them to focus on reduction of these leakages that is ultimately paid by end consumers in the shape of high tariff.

The Petroleum Division has initiated a process of consultation to consider reduction in allowable UFG benchmarks along with reduction in return on assets and rationalization of transmission and distribution costs to create some fiscal space for the companies instead of simply resorting to increase in tariffs.

The spokesperson for Petroleum Division says that the division has actively engaged with all key stakeholders; OGRA, the Board of Directors (BoD) and managements of the both Sui companies to come up with out-of-the-box solutions to reduce the burden of high gas prices on the most vulnerable sections of society. Both Sui companies are incurring gas losses (UFG) in double digits, which far exceeds the best international practices.

The spokesperson added that the Petroleum Division is working to instill new thinking in the way the companies' business is being run. The Petroleum Division is taking necessary decisions to reinforce accountable corporate governance, which discourages rent seeking and corruption and promotes value creation resulting in improved service delivery for the end consumers.

In October 2019, the ECC gave approval to three-year (2019/20 to 2021/22) UFG reduction plan of these companies to increase their revenues by Rs29.12 billion till the financial year 2021/22.

This reduction was one of the requirements of the IMF for its Extended Fund Facility (EFF). Under this plan, SSGC will add around Rs20.1 billion and SNGPL Rs9.023 billion to their accounts in the shape of increasing revenues by cutting down their UFGs.

The 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 the 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 the final fiscal 2021/22, the reduction target is of 2.87 percentage points (or 12,202 mmcfd).

The SSGCL will introduce fixed-billing gas tariff in Balochistan for the 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 increase its revenues by Rs9.03 billion over these three years.

In the outgoing fiscal, it will cut the UFG by 1.5 percentage points (6,840 mmcfd), in FY2020/21 by 1.25 percetange points (or 5,700 mmcfd) and by the year 2021/22, the UFG reduction target is 1.25 percentage points (or 5,700 mmcfd).