May 17, 2003	Saturday	Rabi-ul-Awwal 14, 1424

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ISLAMABAD, May 16: Power utilities, generation companies and the industrial sector on Friday opposed a proposed increase in the gas prices but the Karachi Stock Exchange supported it “to ensure profits to the shareholders of Sui Northern Gas Pipelines Limited.”

They were expressing their views here at the public hearing of SNGPL’s petition for determination of its revenue requirement for the fiscal year 2003-04 through a raise in natural gas price by Rs2.22 per MMBTU with effect from July 1, 2003.

A four-member panel of Oil and Gas Regulatory Authority (Ogra) led by its chairman Munir Ahmad comprised members Jawaid Inam, Mahboob Elahi and Rashid Farooq.

The SNGPL is seeking increase in its prescribed price of natural gas by Rs2.22 per MMBTU for the financial year 2003- 2004 to enable a 17.5 per cent return on average net fixed assets in accordance with the requirement of the World Bank’s loan agreement.

The All Pakistan Textile Mills Association, the Northern Power Generation Company Limited, Wapda, the KSE, and the Consumer Rights Commission of Pakistan participated in the proceedings as “interveners”.

The APTMA was of the view that the petition of SNGPL for an increase in the gas price was absolutely “unjustified” and should be rejected by Ogra on the following grounds:

(a) The current profitability and projected profitability of the SNGPL and its reserves are already much higher than 17.5 per cent return on assets (ROA) and therefore do not warrant any further help through increase in gas tariff.

In fact, based on the projected profitability of the company for the year 2002 and beyond, the tariff of the company should be reduced.

(b) The operating and distributing cost (10.5 per cent of net sales against international standard of 5 per cent) of the company should be adequately controlled by giving quantified performance targets to the company’s management.

This measure will result in significant decrease in its operating costs and substantial improvement in profitability and cash inflow which would more than provide for any future operating and development funds requirement.

(c) The operating performance and cost standards based on the performance and cost standards of gas companies around the world should be given as performance and cost targets to the management of SNGPL. This professional management approach will bring about enormous improvement in the operations and a reduction in wastage and inefficiency.

(d) The SNGPL will soon be privatized and as such there is no justification or urgency for the present management to seek further enhancement of gas tariff which would only benefit the private management at the cost of Pakistan’s industry and its exports.

(e) In view of the impending privatization, the company should not be allowed to make any unnecessary heavy fixed investment in fixed assets which will unnecessary increase the amount of fixed assets and the return required thereon.

The Northern Power Generation Company which operates six thermal power stations, was of the view that the present demand for an increase in gas tariff will put an additional burden due to gas consumption for power generation which will cause increased pricing for end-consumers of electricity.

They also pointed out that the price of gas for production of fertilizers was far less than the price of gas for power generation. They, therefore, requested Ogra that the SNGPL should be directed to provide gas for power generation at the rate they have been providing to the fertilizer factories.

The Karachi Stock Exchange (Guarantee) Limited was of the view that a large number of investors, both individual and institutions, had invested their funds in the equity of the company on the basis of the publicly-declared price formula which assures 17.5 per cent return on net operating fixed assets.

The assured return thus safeguards investing public’s interest. Being custodian of the interest of the investors at large, including the small investors of SNGPL, the KSE asked Ogra to protect the investor’s interest by maintaining the pricing formula.

Wapda said that two of the independent power producers (IPPs) — Fauji Kabirwala and the KAPCO — were operating on gas purchased from SNGPL while another IPP — Rousch Pakistan Power Limited Company — was converting its plant to gas to be purchased from SNGPL by the end of this year.

The expenses on fuel incurred by the IPPs are passed on to Wapda through the fuel cost component of the power purchase agreement which is immediately passed on to the Wapda consumers. The utility and the electricity consumers are thus adversely affected due to the increase in the gas price.

Wapda suggested that the increase in gas price should not be allowed and the SNGPL directed to improve its efficiency and cut costs through various measures like rightsizing of the organization, improvement in the procurement and the contracting procedures, assessment of capital requirement and its management through borrowing at the lowest market rate through competitive bidding, reduction in profit/dividends, reduction in transmission and distribution losses and efficient recovery system, etc.

The general public also suggested Ogra not to allow the SNGPL to make increase in its gas price. The Ogra chairman assured the participants that their views on various aspects of the petition would be given due weightage and their interests would be protected at the time of determination of tariff.