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March 22, 2020

Gas companies tell PM Sectt: Tariff reduction to bankrupt gas companies

National

March 22, 2020

ISLAMABAD: The gas companies --- Sui Northern and Sui Southern have told that if the gas tariff is reduced by decreasing the allowable losses (UFG—unaccounted for gas), rate of return on assets, rate in depreciation, transmission and distribution cost, they will go bankrupt as the cumulative impact of the said changes stands at Rs17.642 billion per year.

They told the government that in particular if rate of return on assets is reduced their equity will be eroded and the bankers may invoke default clauses, withdrawing the credit lines and more importantly sovereign guarantees of the government may be called.

In a letter addressed to PM Secretariat on March 17, a copy of which is available with The News, Executive Director General (EDG) Petroleum Division cited inputs from MDs Sui Southern and Sui Northern gas companies and the chairpersons of the respective board of directors.

Meanwhile the top man of Petroleum Division in accordance with the orders of PM Secretariat held a meeting of Managing Directors and Chairpersons of BoDs of gas companies ---Sui Northern and Sui Southern, some days ago, and asked them to reduce the gas tariff by decreasing the benchmarks of unaccounted for gas (UFG) from 6.3 per cent allowed by the Oil & Gas Regulatory Authority (Ogra) to 4pc.

The gas companies were also told to bring down their rate of return on assets from 17 and 17.5pc allowed by Ogra to 15pc. They were also directed to slice down the rate of depreciation on assets by 1 percent and reduce the transmission and distribution losses.

Earlier on March 10, Secretary Petroleum Division, Asad Hayaud Din in his letter, also available with The News, asked the chairpersons and managing directors of the Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) to seek approval of their boards to lower the revenue requirements in the consumer tariff.

In his response, the EDG said that the gas companies will suffer defaults since the 40 percent of the total Sui Northern unaccounted for gas (UFG) is due to bad law and order in some areas like Gurguri, Makori and Karak. While in case of Sui Southern, 50 percent of total UFG is in Balochistan and interior Sindh. The government has limited writ in these areas because of which the losses are prone to happen. The EDG also included the view point of OGRA in his response saying that federal government needed to issue policy guidelines for reviewing the permissible losses.

The government wanted both the companies to make capital expenditure prudent and slice down the operating and human resources cost. The OGRA said BoDs have to rationalize the said cost while approving the petition before submitting it to the regulator. The ORGA has also asked for policy guideline from the federal government.