ISLAMABAD: Independent consultants have suggested allowing five per cent unaccounted for gas (UFG) losses allowance to gas utilities in consumer tariff for the next five years with targets for their gradual decline.

The consultants – KMPG Taseer Hadi & Co – appointed by the regulator, however, conceded that the proposed UFG benchmark was the highest in comparable gas markets and that its conclusion was mostly based on contributions and arguments of the gas utilities in addition to the regulator.

This is slightly higher than 4.5pc currently being allowed by the Oil and Gas Regulatory Authority (Ogra) and being challenged by gas utilities – Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited – and the government.

“Finding comparable countries remained a challenge, however based on nearest matches, maximum allowance provided by regulators is 5pc and we suggest the same to be applied by the authority taking a moderate approach,” said the draft study released by Ogra on Friday.

It provided a comparison of 11 nearest matching markets. The report said the 5pc UFG benchmark was the highest losses charged in tariff to consumers in the markets like Bangladesh, Russia and Texas in the USA. Otherwise, UFG benchmarks were as low as 0.5pc in Australia and 1pc in the United Kingdom. Loss benchmarks in Canada, Germany, Ukraine and New Zealand ranged between 2.16pc to 2.65pc while Turkey allowed 4.2pc losses and Croatia 3.3pc in consumer tariff.

The study said the current UFG losses of SSGCL stood at 13pc while SNGPL’s losses were even greater at 15pc. This is in contrast to losses being reported by the gas utilities at around 9-10pc. The regulator had been under extreme pressure from the government to pass on higher system losses to consumer tariff to lift the gas utilities out of financial losses.

Under the directives of Cabinet’s Economic Coordination Committee (ECC), Ogra had allowed various losses (law and order, minimum billing and theft) in tariff. The ECC had called for these losses till such time an independent study was completed.

The KPMG study nevertheless creates a new way out for higher system losses in the name of “local conditions component”. It said that about 4pc of additional relief be given to gas companies which should be linked to achievement of key performance indicators and key monitoring indicators to Sui companies.

This is also in line with current losses allowed by the regulator in the name of law and order, non-consumers, theft and shift in bulk to retail consumers. These were added on the requests of the gas utilities arguing the shift in bulk to retail consumers, losses due to law and order etc were beyond their control and were resulting in higher losses due to greater theft and lower recoveries.

The study deplored that gas distribution companies in other countries had a measured and managed approach to gauge UFG with robust distribution networks where gas being transported was fully measured end-to-end but existing measurement mechanism at Sui Companies are not adequate enough to provide UFG details appropriately at contributing factors level.

“Sui companies are unable to determine the actual difference between the volumes received and dispatched for a particular network segment. Accordingly, with the existing set up it is not possible to identify actual losses associated with each contributing factor in UFG. The current exhibit break up of UFG into contributing factors based on assumptions and estimates,” the study said.

Published in Dawn, February 18th, 2017