ISLAMABAD: Pakistan’s gas utilities came under sharp criticism on Friday as industry stakeholders argued that a guaranteed rate of return on assets has undermined operational efficiency, allowing state-owned companies to earn profits of up to 21 per cent despite persistent energy shortages.
The concerns were raised during a public hearing held by the Oil and Gas Regulatory Authority (Ogra) to review the existing gas pricing framework for Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC), which currently ensures a fixed return on their regulated asset base.
Participants were informed that in FY 2024-25, both utilities earned a 21 per cent return on their net regulated fixed assets, translating into profits of Rs36.75 billion for SNGPL and Rs19.98bn for SSGC from the sale of locally produced gas. In addition, earnings from re-gasified liquefied natural gas (RLNG) stood at Rs7.34bn for SNGPL and Rs6.67bn for SSGC.
Consultancy firm KPMG, engaged by Ogra, proposed a revised rate-of-return mechanism based on the Capital Asset Pricing Model (CAPM). Under the proposal, 80 per cent of the return on equity would be assured, while the remaining 20 per cent would be linked to efficiency targets.
Speaking at the hearing, Tabeer Energy CEO Shahid Karim said the guaranteed return model had eroded incentives for efficiency. He noted that utilities would still secure 80 per cent returns even with low gas utilisation and highlighted the absence of a transparent mechanism to distinguish between indigenous gas and RLNG costs. He added that poor data transparency was a key driver of the growing circular debt.
The head of finance at Universal Gas Distribution Company (UGDC) said private-sector gas operations had demonstrated smoother performance despite competing with state monopolies. He criticised the inclusion of financial and depreciation costs in operating expenses of public utilities, arguing that consumers were being overcharged while profits were passed on to shareholders. “There is no justification for a guaranteed return on assets under these conditions,” he said.
Responding to the criticism, SSGC Managing Director Amin Rajpoot said the rise in earnings was largely due to high interest rates in recent years. He maintained that gas utilities were operating under significant financial and operational stress, citing investments in more than 0.2 million kilometres of new pipelines enabled by the guaranteed return framework.
He further pointed out that gas prices had not been revised for the past three years, contributing to circular debt, and cautioned against abrupt changes to the pricing regime. “Any reform should be gradual and segment-specific,” he said.
SNGPL Deputy Managing Director Faisal Iqbal defended the guaranteed return, stating it was a feature of regulated regimes worldwide to ensure tariff stability and financial sustainability. He termed the KPMG-proposed return “unreasonable” and urged Ogra to adopt a mechanism that balances consumer protection with sector stability.
KPMG, in its remarks, advised caution in drawing parallels with the power sector’s return models, citing fundamental differences in capital structures. Unlike many power companies, gas utilities are heavily leveraged and cash-strapped, with significant commercial debt. Applying formulas designed for low-debt entities, the consultant warned, could fail to cover actual financial obligations and jeopardise the sector’s viability.
Story by ZAFAR BHUTTA
