The Oil & Gas Regulatory Authority (Ogra) has recently made a request to the government to increase gas tariffs by 45% to 50% for all consumer groups across the country. This move is aimed at meeting the revenue requirements of two major gas utilities, Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL), during the fiscal year 2023-24.
Introduction
In the late hours of the night, Ogra, the regulatory authority responsible for overseeing the oil and gas sector in Pakistan, has proposed a significant increase in gas tariffs. This request comes as a means to bridge the revenue gap faced by SNGPL and SSGCL, the two primary gas utilities in the country. If approved, the proposed increase of 45% to 50% will have far-reaching implications for consumers and the overall economy.
Ogra has conducted separate determinations for SNGPL and SSGCL to assess their revenue requirements. These determinations have led to the recommendation of an increase in average gas rates for both companies. For SNGPL, Ogra suggests a 50% increase, amounting to Rs415 per unit, bringing the average sale rate to Rs1,239 per unit. Similarly, for SSGCL, the recommended increase is 45%, which translates to Rs417 per unit, resulting in an average gas rate of Rs1,351 per unit.
These determinations have significant financial implications for both companies. If implemented, the proposed tariff increase will provide SNGPL with approximately Rs121 billion in additional funds during the upcoming fiscal year. Similarly, SSGCL stands to gain an extra Rs105 billion to meet its revenue requirements.
SNGPL's Revenue Requirement
SNGPL, which supplies natural gas and regasified liquefied natural gas (RLNG) to Punjab and Khyber Pakhtunkhwa, has demanded a substantial increase in its average prescribed price. The company proposed a 286% increase or Rs2,206 per unit, based on the amounts approved by Ogra in the previous year but not yet recovered from consumers. However, Ogra has decided to allow only a 50% increase, resulting in an additional Rs415 per unit.
The revenue requirement of SNGPL stems from various factors, with the cost of natural gas being a significant component. Ogra's decision acknowledges this, while also considering the financial implications for consumers and the need to strike a balance between revenue requirements and affordability.
SSGCL's Revenue Requirement
SSGCL, responsible for supplying gas to Balochistan and Sindh, has also requested a tariff increase. The company sought a 42% increase or Rs388 per unit, aiming to raise the average gas rate to Rs1,322 per unit. However, Ogra's determination has resulted in a slightly higher increase of 45%, amounting to Rs417 per unit, bringing the average rate to Rs1,351 per unit.
The revenue requirement of SSGCL is driven by similar factors as SNGPL, with the cost of natural gas playing a significant role. Ogra has highlighted the shortfall in SSGCL's operating income, estimating it at Rs104.7 billion for the fiscal year 2023-24. The proposed tariff increase is intended to bridge this gap and ensure the financial stability of the company.
Impact on Gas Supply
The proposed tariff increase will have implications for gas supply in various regions. SNGPL supplies natural gas and RLNG to Punjab and Khyber Pakhtunkhwa, while SSGCL serves Balochistan and Sindh. The increase in gas tariffs may have repercussions for these areas, affecting industries, businesses, and households that rely on gas for heating, cooking, and other purposes.
It is essential for the government and gas utilities to consider the potential impact on gas supply and ensure that the proposed tariff increase does not lead to supply shortages or hamper economic activities in these regions.
The revenue requirements of SNGPL and SSGCL are primarily influenced by the international prices of crude oil and furnace oil. These prices have a direct impact on the cost of natural gas and, consequently, on the revenue needed to sustain the operations of the gas utilities. The agreements signed by the government with gas producers also play a role in determining these costs.
The fluctuating nature of international oil prices poses challenges for the gas utilities, necessitating adjustments in the prescribed prices to maintain financial stability. The revenue requirements reflect these challenges and the need to ensure the long-term sustainability of the gas sector in Pakistan.
