ISLAMABAD: Moving swiftly in the wee hours to meet the deadline given to the International Monetary Fund (IMF), the Oil & Gas Regulatory Authority (Ogra) on Tuesday determined up to 10 per cent reduction in the average prescribed price of natural gas while providing enough material to the government to increase consumer gas rates by about 87pc with effect from July 1.

Ogra “determines the revenue requirements of Sui companies for FY25. The average prescribed price per million British thermal units (mmBtu) of gas is recommended as Rs1,635.90, and the decrease in price per mmBtu is Rs179.17”.

That works out at 10pc for SNGPL, said a determination forwarded to the petroleum division on Tuesday morning. This will ensure about Rs607.4 billion in estimated revenue during 2024-25 against Rs905bn demanded by SNGPL.

Ogra said it had also calculated at Rs580.6bn the financial impact of the previous six years’ adjustment as against Rs862.6bn claimed by Sui Northern Gas Pipelines Ltd, which “has been referred to the federal government for an appropriate policy decision”. These prior year adjustments are on account of average price increases allowed by Ogra during FY19 to FY24, but not passed on to consumers in full by the government.

Interestingly, Ogra claimed it had not made these adjustments in the prior year as part of the instant determination. However, the detailed workings, claims, justification, and approvals are integral to the 50-page determination sent to the government.

Likewise, Ogra also determined the average prescribed price at Rs1,401.25 per mmBtu for Sui Southern Gas Company Ltd (SSGCL) “with a decrease in price per mmBtu of Rs59.23 or 4pc”, the regulator announced. It will meet the estimated revenue requirement of the Karachi-based company at Rs289.5bn during FY25. Ogra said SSGC had claimed average 14pc losses (including about 58pc loss in Balochistan) commonly known as unaccounted for gas (UFG), which stood at 15.5pc.

This is one of the rare occasions in recent years that Ogra has issued its determinations on estimated revenue requirements (ERRs) of the two gas utilities 40 days ahead of the beginning of the new fiscal year so that new consumer rate could become effective from July 1, 2024, under first biannual revenue.

While the government is empowered under the law to make changes to Ogra-approved rates for each category given its socio-economic agenda without impacting the overall approved revenue, Ogra has advocated for the application of at least an average prescribed price for each category of consumers to ensure at least actual cost of gas supply.

The estimated revenue requirements for the two companies have been based on a 26pc return on weighted average cost of capital (WACC), including the application of a 10pc super tax to be recovered through average price. That apparently sets a new precedent for charging consumers the corporate tax imposed by the government through the Finance Bill on the profits of the corporate sector.

Ogra said it had requested for advice from the federal government on category-wise sale prices. Under the law, the government is bound to give such advice within 40 days of Ogra’s determination, or Ogra has to notify automatically the average rates. However, this has never happened. While the government is now eager to revise the consumer-end gas rates upward from July 1 given its commitments with the IMF to address over Rs3tr circular debt it claims, Ogra has never notified gas rates on its own in the past.

Strangely though, Ogra on Tuesday said any revision in average prescribed prices, as advised by the federal government, shall be accordingly notified by it. “Till such time, the existing category-wise natural gas sale prices shall continue to prevail,” Ogra said. It also confirmed that a major part of the increase in the prescribed price emanated from the diversion of expensive LNG imports to the residential sector as the power sector, which had demanded 10 cargoes a month for its power plants, was not utilising its LNG share.

Published in Dawn, May 22nd, 2024