Company may sink if tariff hike delayed: SSGC

Islamabad:

The management of Sui Southern Gas Company (SSGC) has warned that the public gas company will sink financially if gas prices do not rise at the right time.

In a public hearing held by the Oil and Gas Regulatory Authority (Ogra) on Monday, SSGC sought a price hike of Rs 274.40 per million British thermal units (mmBtu) with effect from July 1, 2024 to meet the demand its revenue of Rs.359 billion.

The company asked for Rs 25 billion due to return on assets. The managing director of SSGC said it was a difficult situation for the company as it was paying to buy gas in dollars and selling it to consumers in rupees.

Due to this situation, the company’s huge receivables of Rs 300 billion were stuck for the last two years.

The company’s liabilities stood at more than Rs300 billion, SSGC officials said, adding that the outstanding dues were also affecting the hydrocarbon exploration activities of oil and gas exploration companies.

The Chief Financial Officer of SSGC pointed out that the delay in communicating gas prices is also causing cash flow problems for the company.

He added that the government had notified the gas prices in November last year, while “it is required to notify the tariffs in January and July”. He also asked the government to include the revenue shortfall in Balochistan while revising the gas prices.

A Pakistan LNG Limited (PLL) spokesman said natural gas reserves have declined by 23% over the past four years, forcing Pakistan to rely on liquefied natural gas (LNG) imports.

While the regulator was able to partially implement the weighted average cost of natural gas, it urged the authority to fully implement the formula, which would go a long way in recovering the cost of imported gas. It would also ensure better cash flow for the companies.

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He argued that the full impact of the losses should be passed on to consumers in the case of both local natural gas and imported LNG.

Another industry representative opposed the proposed gas price hike, saying it had become too difficult for the industry to survive in the face of sharply higher gas prices.

In a written reply, the South Region All Pakistan Textile Mills Association (Aptma) argued for the need for deregulation of the market and shift from the model of guaranteed rates of return to competitive pricing in the natural gas market.

He emphasized that the liberalization of the natural gas market will enhance competition and innovation, allow new players to enter the arena and promote efficiency.

Textiles emphasized the need to link asset expansion and investment decisions to economic viability and market dynamics.

Natural gas prices have risen to Rs 2,750 per mmBtu, a 223% increase since January 2023. Similarly, grid electricity tariffs are around 17.5 cents per kilowatt-hour (kWh) and are still rising without showing end.

Therefore, there is no economically viable source of energy for businesses to manufacture goods and be able to compete effectively in international markets.

“Tariffs are the highest in the region,” the textile industry said in their response, adding that high energy costs pose a threat to national security by hindering industrial growth, reducing competitiveness and increasing imports and debt dependence.

There was a 12% decline in SGGC’s system uptake, but heavy cross-subsidised residential consumer demand was increasing. The mills called for a review of the consumer protection policy to ensure it was targeted and sustainable, shielded the utility’s revenue and eliminated price distortion.

They pointed out that gas pricing is not based on economic principles which has led to distortions, inflated demand, inefficient use and cyclical debt.

SSGC faces an unrecorded gas (UFG), a term used for gas theft and leakage, of 12% in natural gas supplies and 14.36% in regasified LNG, which are significantly higher than global benchmarks and indicative of systemic technical challenges, governance, political, cultural and socio-economic issues.

Published in The Express Tribune, March 19^u2024.

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