KARACHI:
In a bid to offset a staggering shortfall of Rs 47.77 billion in its revenue from the sale of domestic natural gas in the current financial year 2023-24, Sui Southern Gas Company Limited (SSGC) has approached the Oil and Gas Regulatory Authority (Ogra) . , seeking approval for an additional increase of Rs 266.18 per mmbtu in end-user tariffs, which is expected to take effect from July 1, 2023.
In a public hearing on Monday, the SSGC appealed to Ogra, seeking approval for this supplementary tariff hike, in addition to the previously allowed hike of Rs 417.23 per million metric British thermal units (mmbtu). The target is to generate a total of Rs 104.72 billion in FY24.
SSGC CEO Imran Maniar highlighted the expected heavy casualties from the Balochistan region during the hearing. The recent hike in tariffs will translate into Balochistan consumers facing monthly gas bills of up to Rs 90,000 for many, despite 65% of the province’s residents earning Rs 25,000 or less. SSGC argues that if it is not allowed to recover the shortfall in revenue from other consumers, particularly in economically active hubs like Karachi, the company will suffer significant losses.
Maniar referred to a recent study which revealed that 72% of gas meters in Balochistan are fake, but did not give specific details on how many consumers pay their monthly bills on time. It estimated that unrecorded natural gas (UFG), including line losses and theft, would amount to Rs 20 billion from Balochistan in FY24, with UFG standing at a staggering 57.68%, significantly higher than the benchmark of 7.6%.
The SSGC has not only demanded additional tariff hike for domestic gas but also asked Ogra for permission to increase the imported natural gas (RLNG) tariff by Rs 39.23 per mmbtu. This move is intended to generate an additional Rs 18.13 billion in FY24. Additionally, the company is seeking Ogra’s approval to collect federal excise duty (FED) on regasified liquefied natural gas (RLNG) on a monthly billing basis, aiming to recover areas worth Rs 9.11 billion from April 2016 to June of 2021.
Another request from SSGC is for Ogra to allow Rs 4.62 billion in RLNG supply pricing on behalf of FED for FY2023-24, following the Federal Board of Revenue (FBR) order to pay FED for RLNG regasification activities. The monthly notification of provisional RLNG pricing without considering the FED element has resulted in continuous accumulation
Responsibility of FED since the start of RLNG activity. FBR requires a FED deposit expected to reach Rs 24.1 billion by FY2023-24.
Reading SSGC is also seeking an increase in the price of natural gas
In a bid to prevent losses due to potential defaults in monthly bill payments, the SSGC has proposed to collect an additional Rs 9.58 billion in security deposits from consumers in six equal monthly installments. This proposed increase would align security deposits with three months’ worth of bill payments.
The SSGC also sought an increase in the budget for the remuneration of its workers, who number about 11,000 at present, and sought Ogra’s approval for the purchase of new vehicles.
OGRA:
Ogra Chairman Masroor Khan highlighted the challenges facing the gas industry, including the decline in gas production from local fields to 3,000 million cubic feet per day (mmcfd) due to the 9% depletion of natural gas reserves annually in national level. He highlighted the growing role of imported RLNG, which has increased the average unit price to Rs 2,400-2,500 per unit in some cases.
Khan stressed that the nation must accept RLNG as a reality sooner rather than later as local natural gas reserves continue to deplete. Deciding on the ratio of domestic gas to imported gas in the mixed supply for various industries remains the prerogative of gas utilities. Ogra communicates new rates in collaboration with the Ministries of Finance, Commerce and Industries.
Industry reaction
Industry leaders criticized the SSGC for trying to shift its financial burden to industries, questioning the rationale behind providing subsidized gas to fertilizer manufacturers. Zubair Motiwala, Head of Pakistan’s Trade and Development Authority (TDA), expressed concern over SSGC’s proposal to increase the proportion of expensive RLNG in the gas mix to industries, potentially leading to increased production costs and industry closures.
In response to industry backlash, the SSGC MD issued a strong statement, threatening to shut down the entire supply system if the proposed tariff adjustments were rejected. He stated, “If you don’t want the gas (RLNG), then nobody would get the gas, including industries and domestic (households). I would pull the supplies and shut down the system.”
A businessman, Arif Bilwani, questioned the logic of providing subsidized gas to fertilizer manufacturers in the name of food security, while these farmers are sold fertilizers at exorbitant prices, allowing the manufacturers to profit at the expense of textile and other industries. Bilwani suggested that the SSGC losses be deducted from the NFC award under the 18th amendment.
Shiraz Khan of the All Pakistan Textile Manufacturing Association (APTMA) expressed concern that the rise in gas prices will affect businesses instead of reducing cyclical debt, with the export sector expected to be a major survivor.
Zain Bashir, President of Landhi Chamber of Commerce and Industry, urged SSGC to shoulder its losses, stressing that the proposed additional hike in gas prices for industries will make the tariff the highest in the region, exceeding $9.7 per unit.
As production costs soar, industries have begun to shrink and the effects of the proposed tariff adjustments are expected to be felt nationally in the near future.
Published in The Express Tribune, December 19u2023.
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