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ISLAMABAD: Despite widespread demands to the contrary, the government asked Ogra on Wednesday to increase the limit for unaccounted for gas (UFG) losses by two per cent, with a revenue impact of over Rs55 billion, to oblige the gas companies and their shareholders seeking increased profitability.
According to sources, at a meeting at the ministry of petroleum and natural resources attended by senior management officials and private sector shareholders of the two gas utilities — Sui Northern Gas Pipelines (SNGPL) and Sui Southern Gas Company (SSGCL) — Ogra was asked to increase the UFG limit from about seven per cent to nine per cent. An official said if the demand was met, the consumers would be burdened with an increase in tariff involving an overall revenue impact of about Rs55 billion in three years.
Under the existing arrangement put in place by Ogra in consultation with gas companies, the UFG losses were to be brought down to 4-5 per cent.
The official said the Oil and Gas Regulatory Authority could not increase the UFG limits unilaterally simply on the verbal orders of the petroleum ministry.
He explained that if the ministry wanted to increase the limit of gas losses, the government had to issue policy guidelines after approval of the cabinet or its Economic Coordination Committee (ECC).
Ogra is currently holding public hearings on the request of gas utilities to increase tariffs for consumers.
An insider said the move would result in escalating the share prices of the gas utilities in the stock market to the advantage of investors and help them earn higher revenues without reducing their losses to meet the increased expenditure arising out of new connection schemes on the recommendations of politicians.
The source said the gas consumers were already estimated to have suffered a whopping Rs70 billion loss over three years thanks to a single decision of Ogra to hike the prices in violation of rules.
The earlier increase in UFG limits had attracted the attention of the Supreme Court that ordered the National Accountability Bureau to investigate the issue and fix responsibility for the ‘improper’ decision.
It was in September 2010 that Ogra made a substantial departure from its own previous decisions and targets, and set losses at seven per cent for 2009-10. Previously, it estimated UFG losses at 4.5-5.5 per cent. As a result, there was a 13 per cent increase in gas tariff for that year, followed by another 15 per cent increase in August last year and about 14 per cent with effect from Jan 1, putting the total estimated loss at over Rs70 billion.
The decision to increase UFG to seven per cent and to treat revenue from operating assets as non-operating income was shared by Ogra leaders with powerful stock exchange brokers sitting on the board of directors of the gas companies.
Consequently, the SSGCL share being traded in the stock exchange for Rs16 on Sept 23 jumped to Rs36 in a matter of days.
Officials said this decision violated the loan conditions of the World Bank and Asian Development Bank. These conditions specified that late payment surcharge, meter manufacturing profit, income from Jamshoro Joint Venture and sale of condensed gas were to be treated as operating income which was to be transferred to the consumer through a subsidy on bills. As the stock players earned over Rs10 billion, the then Ogra chairman tried to reverse the decision after an onslaught of public criticism. He tried to reverse the decision in December 2010 by reducing the UFG benchmark to five per cent and treating late payment surcharge and revenue from metering plant and Jamshoro Joint Venture as operating income. However, this was vetoed by Ogra’s member (gas).
Under the agreement signed by the gas companies and Ogra, the UFG losses were required to be gradually reduced to 5.5 per cent in 2009-10 from their actual losses of about seven per cent.
The agreement required that the gas companies would bear the burden of loss beyond the agreed benchmark and earn profit if they surpassed the target.
