Wednesday, February 1, 2023

SSGC demands a 45% increase in gas prices

A public gas utility has demanded an increase in gas prices of around 45 percent in order to make up for a revenue shortfall for the fiscal year 2022-23.

It was convened on Thursday by the Oil and Gas Regulatory Authority (Ogra) to evaluate Sui Southern Gas Company’s (SSGC) petition for determination of its expected revenue requirement and prescribed prices for the fiscal year 2022-23, which was heard in public.

During the fiscal year 2022-23, the gas utility predicted an average prescribed price of Rs1,013.02 per mmBtu in the natural gas industry. Furthermore, it projected the cost of service for RLNG (re-gasified liquefied natural gas) at Rs16.47 per mmbtu with effect from July 1, 2022, for RLNG business at Rs16.47 per mmbtu.

On February 14, 2022, the utility submitted a petition in front of Ogra seeking approval of its expected revenue requirements and prescribed pricing for the next fiscal year.

Following that, on March 9, 2022, it filed an amended petition that separated the revenue requirement petition into three categories: transmission, distribution, and sales.

Its sales reached Rs263.5 billion, while its operating costs totaled Rs25.1 billion, according to the company’s financial statements. It generated a return on assets of Rs7.9 billion.

It asked for an Rs1.37 billion subsidy for LPG (liquefied petroleum gas) air mix plants, which it received. A further Rs15 billion was sought to cover the cost of UFG (unaccounted for gas) adjustments made to LNG volumes.

SSGC estimated that it had suffered losses of Rs15 billion as a result of UFG caused by the transfer of RLNG in the transmission system.

It stated that it was facing a total revenue shortfall of Rs88 billion and that it was seeking a 45 percent rise in gas prices to take effect on July 1, 2022, in order to satisfy the revenue shortfall requirement.

The revenue need will allow the corporation to cover the cost of gas, operating costs, and the return on assets that it has invested in its assets.

In accordance with the agreements between the federal government and gas producers, the price of natural gas is tied to the price of crude oil on the worldwide market.

Furthermore, the utility’s exclusive rights in its franchise territories, i.e. Sindh and Balochistan, have expired in accordance with the terms of their respective licenses.

It has also predicted a requirement of Rs1,395 million for the construction of 189km-long distribution main lines to connect various new cities and villages in the country.

In the course of the public hearing, a number of points were raised, including whether the utility’s claim for Rs22,585 million in transmission and distribution costs for the fiscal year 2022-23 was prudent, given the fact that indigenous gas sources were dwindling at the time.

On the basis of the company’s operating under a monopolistic environment and being less exposed to financial risk, it was also asked whether the Rs2,761 million claim for expected credit loss in accordance with the International Financial Reporting Standards (IFRS-9) was reasonable.

In addition, the question was raised as to whether the claim for the addition of 132,000 new domestic gas connections on indigenous gas and 713 commercial/industrial connections on RLNG was justified, while simultaneously ensuring the continuity and security of gas supply to existing and prospective consumers.

Read Also: OGRA notifies rising gas prices

Also discussed was whether the proposed expansion of the distribution network, which would cost Rs7,719 million and cover 1,123 kilometers, was prudent in light of the fact that the  (SSGC) no longer had exclusive rights to develop gas schemes in the franchised areas of  Sindh and Balochistan.

Capital expenditures in the amount of Rs37,618 million against indigenous gas and RLNG were also claimed by the utility, and the “expenses claimed against UFG control activities are justifiable in light of the 13.98 percent UFG forecast by the utility,” according to the utility’s claims.

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