Gas loss rates restored to pre-Aug 2020 levels

KARACHI: The government has reinstated the rates of Unaccounted for Gas (UFG) losses on the distribution of RLNG (Regasified Liquid Natural Gas) to pre-August 2020 levels, which analysts said would help reduce buildup of circular debt in the days to come.

According to Oil & Gas Regulatory Authority’s (OGRA) latest notified prices of RLNG for January and February 2022, the rates of UFG losses of gas companies i.e., Sui Northern Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) now stand at over 12 percent and 18 percent respectively.

UFG rates were reduced on RLNG distribution network to a unified 6.9 percent for PSO (Pakistan State Oil) imports and 6.7 percent for PLL (Pakistan LNG Limited) imports, from nearly 12 percent for the distribution network of SNGP and 18 percent for SSGC in August 2020.

UFG is the difference between the amount of gas purchased and the amount of gas sold through a measured gas distribution system. Tahir Abbas, Head of Research at Arif Habib Limited (AHL), said the gas companies moved the court, pleading that this matter was beyond OGRA’s scope, and rules pertaining to RLNG’s treatment were provided by Petroleum Levy Ordinance 1961, hence it was Petroleum Ministry’s issue.

“This remained particularly dampening for the gas utilities, since the impact of said revision would have been colossal.” He said the court decided in the favour of gas companies, ruling out the possibility of any cut in RLNG UFG benchmark.

“Despite this, for several months OGRA’s notices did not reflect the actual losses on distribution. Albeit, OGRA has finally reinstated the benchmarks in its monthly gas price notification.” Tahir termed this to be a major sentiment booster for the Sui gas companies.

The revision in UFG will slow down the surge in circular debt, related to LNG payments that directly impact PSO, the largest LNG importer in the country. “PSO in its published accounts reported overdue receivables of Rs.108 billion from gas companies,” stated Farhan Mahmood, Head of Research at Sherman Securities.

“If the international LNG prices stay at current levels and exchange rate remains stable, the recovery of gas utilities will improve by Rs65-70 billion per annum after recent increase in UFG, Farhan said.

He, however noted that actual UFG losses on LNG may be lower than OGRA estimation of 12.3 percent for SNGPL and 18.3 percent for SSGC as overall UFG losses remained lower as per financial accounts for the gas utilities. Mahmood said that after increase in UFG, gas utilities might also recover the subsidy, which the government was providing on captive units of textile sector.