International Monetary Fund (IMF) has projected that arrears of state owned gas companies – Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company (SSGC) will rise by 0.6 percent of GDP by the end of financial year 2021-22 due to higher cost-revenue mismatch as more liquefied natural gas (LNG) has recently been diverted from the high price power sector to low price domestic users.
The IMF report for second to fifth reviews prepared by a staff team of the Fund for the Executive Board’s consideration on March 24 was released on Thursday.
The report notes that the stock of arrears grew by 0.1 percent of GDP to 0.5 percent of GDP in financial year 2020-21, steadily fuelled by high unaccounted for gas losses (UFG), often delayed sales price adjustments, uncovered subsidies (especially for export and zero-rated industry), and collection shortfalls.
Staff urged for a swift mid-year sale price revision to ensure cost recovery by introducing amendment in Oil and Gas Regulatory Authority (OGRA) Act and the unbundling of two transmission and distribution (T&D) companies that would further incentivize a speedy implementation of UFG-reducing programs.
The government has pledged to consider allowing OGRA to determine the annual revenue requirement of both gas companies and to further revise gas sale prices upwards in the second half of financial year 2021.
The Council of Common Interests (CCI) adopted amendments to the OGRA Act aimed at ensuring that recovery requirements are met in a timely manner in December 2019. The draft bill for requisite enactment has been submitted to the CCLC in April 2020 and is expected to be adopted by parliament before end-June 2021.
The government hiked gas sale prices in September 2020 by a weighted average of 5 percent for all consumers (sparing residential and street food vendors). For the first time going beyond the prescribed price by the OGRA, it covered the financial year 2021, annual rebasing and some arrears of one of the two T&D companies.
In view of sector’s high stock of arrears (amounting to about Rs 199 billion at end financial year 2020, up from Rs 144 billion at end financial year 2019), government is taking crucial measures to improve the sector’s performance.
The government revised gas sales prices upwards in September 2020 to fully reflect the projected annual revenue requirement of both Sui companies for financial year 2021 and a part of Sui Sothern arrears.
The two gas companies are working to reduce UFG losses based on a plan approved by the Cabinet. The reduction of UFG targets were also published in the first annual monitoring report covering financial year 2020 in January 2021 and the first quarterly report covering first quarter of financial year 2021 in February 2021. The government has committed to continue to publish the reports on UFG reduction on a quarterly basis.