Regulator proposes up to 6pc cut in gas prices

Updated 15 Jul 2020

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Various consumer categories had contested the request of the SSGCL and SNGPL for up to 110pc increase in prescribed prices. — AFP/File
Various consumer categories had contested the request of the SSGCL and SNGPL for up to 110pc increase in prescribed prices. — AFP/File

ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) on Tuesday determined 2-6 per cent reduction in the prescribed prices of two gas utilities for fiscal year 2020-21 to pass on partial impact of decline in international oil prices to gas consumers.

The regulator forwarded two separate determinations on revenue requirements of the Sui Northern Gas Pipelines Limited (SNGPL) and the Sui Southern Gas Company Limited (SSGCL) for advice on gas sales price for each category of consumers.

The regulator has set an average prescribed rate for the SNGPL at Rs623.31 per million British thermal unit (mmBtu) instead of existing rate of Rs664.25 per mmBtu, down by 6pc.

The company had demanded a prescribed price of Rs1,287 per mmBtu with about Rs174 billion previous year adjustment and about Rs73bn on account cost of liquefied natural gas (LNG) diverted to residential and commercial consumers in winters. The regulator approved the annual revenue requirement of the company at Rs219bn for FY2020-21. The SNGPL has gas supply network in Punjab and Khyber Pakhtunkhwa.

Likewise, Ogra determined an average prescribed price for the SSGCL at Rs750.90 per mmBtu against its existing average rate of Rs798.18 per unit, down 2pc. The company had demanded the prices price of Rs881.53 per mmBtu with some prior year adjustments and LNG costs. The regulator approved the SSGCL’s revenue requirement for FY2020-21 at Rs270.18bn.

Ogra said it had “significantly slashed the gas companies’ demand for increase in gas prices for FY2020-21. The main reason for reduction in price is international oil prices along with other disallowances made by Ogra in respect of revenue and capital expenditures”.

Under section 8(3) of Ogra law, the federal government is required to advise the regulator within 40 days the minimum charges and the sale price for each category of retail consumers for notification in the official gazette.

Various consumer categories had contested the request of the SSGCL and SNGPL for up to 110pc increase in prescribed prices due to 40-45pc reduction in oil prices over the past 6-8 months.

Despite a 26pc reduction in its cost of gas, the SSGCL had sought about Rs38 per unit (6pc) increase in gas prices while its major industrial and trade consumers had demanded at least 30pc reduction to stimulate economy.

The SNGPL had, on other hand, sought an increase of Rs622.94 per mmBtu effective from July 1 to meet its estimated revenue requirement of financial year 2020-21. In addition, the company also demanded Rs102 per unit cost of imported gas -- LNG -- to be transferred to consumers.

During public hearings, the consumers had lamented the poorly managed and inefficient gas companies for depriving them of the benefit of international oil price crash instead of extending a helping hand in the time of crisis and lockdowns to revive businesses, commercial activities, exports and transport and ultimately employment.

The managements of the gas companies – SSGCL and SNGPL — had claimed they were going under due to prior year outstanding adjustments that were approved by the regulator as legitimate heads but could not be notified by the government and Ogra. The regulator agreed to the demand saying the increases were previously allowed as genuine expenditures but these were not passed on to the consumers by the government for its social-political reasons.

The regulator said it could not allow those allowances again in revenue requirement for FY2020-21 since these belonged to years for which it had separately determined revenue requirements but asked the government to consider a way out to clear backlog including through provision of subsidy from the budget.

The consumers believed the prices of petrol had dropped by 37pc, diesel by 34pc and furnace oil 25pc while crude prices went down by 34pc and hence the gas prices that were linked to furnace and crude oil should also come down proportionately.

Published in Dawn, July 15th, 2020