ISLAMABAD: The country’s two public gas utilities have rejected a proposal to abolish the guaranteed asset-based return mechanism, urging the government to retain the existing pricing regime despite mounting criticism from industrial consumers.
The government had directed the Oil and Gas Regulatory Authority (Ogra) to restructure Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) by ending the fixed return on assets. Ogra engaged consultancy firm KPMG to review the formula, and the firm has submitted its report, officials said.
Critics argue that as the gas pipeline network expanded, gas prices and utility profits rose sharply, increasing the burden on consumers even as gas availability declined. SNGPL’s operating costs climbed from Rs66 billion in FY20 to Rs94 billion in FY24, while its earnings nearly doubled from Rs19 billion to Rs38.9 billion during the same period despite lower gas supplies.
However, both SNGPL and SSGC insist the asset-based return framework cannot be abandoned, noting that key performance benchmarks — including unaccounted-for-gas (UFG) limits — are tied to the current regime.
Industrial consumers have repeatedly opposed the fixed return structure, arguing that utility profits continue to grow while supplies shrink due to network expansion. They have also called for an independent legal review to ensure uniform application of UFG benchmarks across all stakeholders.
The gas sector is currently burdened with a circular debt of about Rs2.6 trillion, exacerbated by high LNG costs and delayed recoveries. SNGPL faces heavy payment obligations to Pakistan State Oil for LNG supplies, while SSGC has pointed to weak bill recovery — particularly in Balochistan, which accounts for around 40% of gas losses — as a major contributor to the debt.
In a corporate briefing, SSGC said KPMG had completed its review but highlighted uncertainty over cash inflows to resolve the circular debt within the proposed three-month timeframe.
SSGC also announced plans to add 50,000 re-gasified LNG (RLNG) connections from July 2026, noting that RLNG is around 30% cheaper than LPG. The company has received 12,000 applications so far and is currently supplying RLNG to multi-storey buildings, while industrial supply continues through blended gas.
Ogra has set SSGC’s UFG benchmark at 12.07% (34.8 billion cubic feet) for FY25, a determination the company is contesting in favour of a 10% level, which it says could save Rs1 billion per 1 bcf reduction.
SSGC outlined major investment plans, including Rs28 billion for rehabilitating 2,500 km of distribution networks and a Rs10 billion transmission pipeline, with annual capital expenditure of around Rs40 billion subject to cash availability.
Gas supply to captive power plants has fallen from 180 mmcfd to 100 mmcfd following the imposition of an off-grid levy, though the company expects demand to remain steady due to unreliable grid power. New supply agreements with K-Electric and National Steel Complex could offset the loss of captive consumers, while the restart of the JJVL plant is expected to add around Rs1 billion to SSGC’s bottom line.
The company also said its tax burden remained high in FY25 due to a 0.75% turnover tax.
Story by Zafar Bhutta
